Chapter 3 3-1 Copyright © 2003 by Nelson, a division of Thomson Canada Limited. PowerPoint...

Chapter 3 3-1Copyright © 2003 by Nelson, a division of Thomson Canada Limited.

PowerPoint Presentation by PowerPoint Presentation by

Thomas MThomas MccKaig, Ryerson UniversityKaig, Ryerson University

Franchising Franchising OpportunitiesOpportunities

33


Looking AheadLooking Ahead

After studying this chapter, you should be able to:

1. Describe the significance of franchising in Canada.

2. Identify the major advantages and limitations of franchising

3. Discuss the process for evaluating a franchise opportunity.

4. Evaluate franchising for the franchisor’s perspective.

5. Describe the franchisor/franchisee relationship.


Franchising TermsFranchising Terms

• FranchisingA marketing system revolving around a two-party legal

agreement, whereby the franchisee conducts business according to the terms specified by the franchisor

• Franchise contractThe legal agreement between franchisor and franchisee

• FranchiseThe privileges conveyed in the franchise contract

…continued


Franchising TermsFranchising Terms

• FranchiseeAn entrepreneur whose power is limited by a

contractual agreement with a franchisor

• FranchisorThe party in the franchise contract that specifies

the methods to be followed and the terms to be met by the other party


Types of FranchisesTypes of Franchises

• Product and Trade Name FranchiseGrants the right to use a widely recognized product or

name

• Business Format FranchiseProvides an entire marketing system and ongoing

guidance from the franchisor

• Piggyback FranchisingThe operation of a retail franchise within the physical

facilities of a host store…continued


Types of FranchisesTypes of Franchises

• Master LicenseeAn independent firm or individual acting as a sales agent

with the responsibility for finding new franchises within a specified territory

• Multiple-Unit OwnershipHolding by a single franchisee of more than one

franchise from the same company

• Area Developers Individuals or firms that obtain the legal right to open

several franchised outlets in a given area


Figure 3-2

Pluses Minuses

Formalized training

Financial assistance

Proven marketingmethods

Managerial assistance

Quicker startup time

Overall lower failurerates

Franchise fees

Royalties

Restrictions on growth

Less independence inoperations

Franchisor may be solesupplier of somesupplies

Termination/renewalclauses

The Pros and Cons of FranchisingThe Pros and Cons of Franchising


The Advantages of FranchisingThe Advantages of Franchising

• Proven marketing concept and customer base• Training • Financial assistance• Operating assistance


Financial AssistanceFinancial Assistance

• Start-up business costs are normally high and thus by teaming up with a franchise organization, the individual can increase her/his chance of receiving financial help.

• The franchisor might chose to use liberal payment schemes to the franchisee in order to get over the initial financial hurdle.


Operating AssistanceOperating Assistance

• The franchisor provides a range of operating services including site selection, bulk purchasing of equipment, and inventory.

• Other areas of assistance include the use of an established, nation-wide brand


Pros and Cons of FranchingPros and Cons of Franching

• Advantages– Probability of success

• Proven line of business

• Pre-qualification of franchisee

– Training• Franchisor-provided

– Financial assistance• Franchisor assistance

– Operating benefits• Franchisor-aided

• Limitations–Franchise costs

• Initial franchise fee

• Investment costs

• Royalty payments

• Advertising costs

–Restrictions on Business Operations

–Loss of independence


Limitations of Franching: Restriction of Business Operations

Limitations of Franching: Restriction of Business Operations

• Restricting of sales territory• Requiring site approval and

imposing requirement on the outlet’s appearance

• Restricting the goods/services that can be sold

• Restricting the resale of the franchise without their permission

• Restricting advertising and hours of operation


Evaluating Franchise OpportunitiesEvaluating Franchise Opportunities

• Locating a Franchise Opportunity

• Investigating the Potential FranchiseInformation sources

• Independent, third-party sources

• Franchisors themselves

• Existing and previous franchisees


Explanation of CostsExplanation of Costs

• Franchise fee

• First and Last Month’s Rent

• Leasehold Improvements

• Equipment

• Furniture and Fixtures

• Signage

• Insurance, Licences and Permits

• Training

• Initial Inventory

• Working Capital

• Royalty


Global Franchising OpportunitiesGlobal Franchising Opportunities

• Historically, many Canadian franchisors have expanded into the United States.

• Canadian franchising enterprises are now expanding into countries beyond North America.


Investigating the Franchise CandidateInvestigating the Franchise Candidate

• Three sources of information:– independent third party sources– franchisors– existing and previous franchisees


Selling a FranchiseSelling a Franchise

• Why would a businessperson wish to become a franchisor? Three benefits can be identified:

1. Reduction of capital requirements

2. Increase in management motivation

3. Speed of expansion

…continued


Selling a FranchiseSelling a Franchise

• Drawbacks associated with franchising from the franchisor’s perspective.

1. Reduction in control

2. Sharing of profits

3. Increase in operating support


Franchising FraudsFranchising Frauds

• The Rented Rolls Royce Syndrome

• The Hustle

• The Cash-Only Transaction

• The Boast

• The Big-Money Claim

• The Couch Potato’s Dream

• Location, Location, Location

• The Disclosure Dance

Chapter 3 3-1 Copyright © 2003 by Nelson, a division of Thomson Canada Limited. PowerPoint...

Documents

Transcript of Chapter 3 3-1 Copyright © 2003 by Nelson, a division of Thomson Canada Limited. PowerPoint...