Franchise Management

INTRODUCTION
 Some common terms
⚫ What is a franchise?

A franchise is the agreement or license between two

legally independent parties which gives :

▪ a person or group of people (franchisee) the right to market a

product or service using the trademark or trade name of another
business (franchisor).
▪ the franchisor the obligation to provide rights and
support to franchisees.
▪ Starting your own business definitely has its own advantages,
but that’s not the only way to make your way into the world of
business. The idea of franchising has gained the interest of both
business owners and aspiring entrepreneurs for many reasons.
Franchisor – Franchisee Relationship
⚫ FRANCHISEE – the person or company that gets the right from
the franchisor to do business under the franchisor’s trademark or
trade name.
Example : Patanjali , Domino's , Archies , PMKVY
Franchise , Dr. Batra's Clinic , KFC , First Cry , Lenskart ,
Café Coffee Day , DTDC Courier , Amul Scoop , KidZee
School.
Franchises benefit the organizations increasing their footprints in
India, plus it plays a vital role in the country’s economic
development with more job creation. This is one of the reasons
why people are endeavoring to franchise business in India.

• FRANCHISOR – the person or company that grants the

franchisee the right to do business under their trade-mark or trade
name.
⚫FRANCHISING – a method of business expansion
characterized by a trademark license, payment of fees,
and significant assistance and/or control.

⚫TRADEMARK – the franchisor’s identifying marks,

brand name and logo that are licensed to the franchisee
 History
⚫The model of franchise management began in the 1990s in India, with the
start of the era of liberalisation.

⚫This system was initially adopted by a few educational institutions and IT

companies for business expansion and was slow to grow at first.

⚫But today, the franchise industry in the country has several well-known
brands in various cities operating under this model.

⚫Today India is home to more than 3,000 brands which adopt the
franchising model:

Bata, one of the leading footwear companies, was among the first
franchisors in India; other pioneers of Indian
franchising were NIIT, Apollo Hospitals, and Titan Watches.
Frenchising in India
⚫The franchise business in India is becoming
increasingly popular among domestic and international
players across many sectors. Consequently, some of
the major industries credit successful franchising for
their rapid progress in India. According to KPMG
India, the key industries with the highest prospects of
successfully franchising in India are:
(i) retail
(ii) food and beverages
(iii) health, beauty, and wellness
(iv) consumer services
(v) education and training.
⚫The franchising industry in India is growing at 30-35%
year-on-year and is pegged to touch USD 100 billion by
2024.
⚫India is already the second-largest franchise market in
the world, after the US, with over 4,600 active
franchisers and nearly 2,00,000 outlets operated by almost
1.7 lakh franchisees.
⚫During the last two years, multi-unit franchising has
grown by over 36%. However, the Indian franchise
market is still very young; the industry accounts for
roughly 2% of the national gross domestic product
(GDP).
⚫ The future for franchising in India is bright. Over the years, India
has become an attractive destination for business investments due
to the rapid growth of consumerism, globalization, and
liberalization.

⚫ India enjoys a positive economy, large consumer market, and

loosening government restrictions. The window of opportunity in
India is open.

⚫ But foreign franchisors should make sure to conduct a thorough

investigation and evaluation of business opportunities (taking into
account the many legal, political, business, and cultural barriers
that may exist) before committing long-term to franchising in
India.
 Benefits for the Franchisor

⚫Less Capital Needed

One of the biggest challenges of starting a business,
whether it’s a new venture or an extra branch, is the capital
needed. There’s a need to have enough capital to cover the
overheads and maintain operations until the business starts
making a profit. That’s not the case with franchising the
business, as the franchisee becomes the one responsible
entity for providing the capital needed to open and operate
the franchised outlet.
⚫ Better Management
There are variety of available franchising models, that gives
better options when it comes to managing a brand. The 4 most
successful franchising models: single-unit, multi-unit, area
development, and master-franchise ownership franchising
models. Each franchise model delegates the management of the
branches to the franchisee, which drastically reduces the
involvement of the franchisor in daily operations. Moreover, this
management structure provides a lean operational
structure that improves efficiency and maximizes
performance, leaving the managers and owners motivated. 
⚫ lean operational structure : Lean management is a
management method that aims in continuous improvement
of a company by using as less resources (time, money, effort),
as possible.
⚫ Better Staffing
Lean management is not the only workforce advantage of
franchising your business; There is no need for as many
employees with a franchise. Franchisor is able to delegate most of
the management and staffing work to the franchisees, and they’ll
be free to operate the branch on their own terms. Overall, they
both end up with a much leaner organization. 

⚫ Profitability
As a result of the lean management structure, the workforce
becomes more focused on operating efficiently. With nothing but
supervision needed from the franchisor, they can focus on
developing the business, which in turn increases profit.
Furthermore, franchisors profit as well from the periodical
royalties paid by the franchisee.
⚫Enhanced Speed of Growth
Starting a franchise is the most efficient and lean way to
expand your business. The idea of being left behind or
having your idea stolen while you’re preparing the capital to
open a new branch is a nightmare for most business owners,
and starting a franchise provides a simple yet effective
solution for this dilemma. A franchise helps you multiply the
marketing, advertising, and sales efforts as well, which
serves in increasing your customer base and loyalty. 
Less Risk for Liability
Running a business always comes with a high risk of liability,
and this risk increases once it scale up the business. However,
since the franchisee will be the legal owner of the branch,
they’ll be the ones signing lease agreements, managing
employees, and handling all legal activities. 

Enhanced Brand Equity

Finally, opening franchising outlets is the fastest way to
grow the market share of any brand. By doing so, the brand
equity will grow effectively and quickly, with the least
effort on owner’s part. 
 Demerits of Franchisor
⚫ Difficult in motivating franchisees
Generally, a franchise is an agreement for a specific period
ranging between five and ten years. During this period,
the business may witness several ups and downs. When
the business is down, the franchisee may lose his initiative
in business. The franchisor in such situations, finds it
difficult to motivate the employees. Moreover, he
experiences problems in motivating independent operators
to price, deliver, promote and hire according to the
standards of the business.
⚫ Problems of inconsistent quality
Franchisees deliver unique service concept. They are service
outlets licensed by a principal. The franchisees should distribute
the services according to the specifications of the franchisor. If
the franchisee does not deliver the service properly, the brand
name of the franchisor will suffer. Low performing franchisees
will always undermine the name and reputation of the franchisor.
• Lack of direct contact with customers: The franchisor is not in
direct contact with customers which means that he cannot
understand the needs of the customer. As franchisees directly
deal with customers, they maintain a good customer relationship.
 Contd...
• The relationship formed between the customers and franchisees
is strong. Franchisees are able to collect all customer-related
information relating to demography, purchase-pattern and
preferences. Customer relationships are effectively maintained
by the franchisees rather than by the franchisor.
 Benefits for the Franchisee
⚫Lower Risk of Failure
The fact that initially startups fail within 1 to 5 years is scary.
However, buying a franchise with an established concept
significantly lowers this risk. Since franchises are turn-key
solutions, there’s little to no experimentation to be done. 
⚫Receiving Business Assistance
One of the biggest reasons for the lower risk of failure is that
the franchise owners receive training and guidance as a part of
the deal. Moreover, franchisees receive supplies and equipment
from the franchisors, as well as the buying power of the parent
company, which both sets them up for seamless operations and
passes on the savings to the branch.
⚫Having an Exposure Head Start
They won’t have to start your marketing from scratch when
it comes to owning a franchise. They will be able to
leverage the name of the parent company to your advantage
and access the customer base of a nationally-recognized
brand. 

⚫Higher Profits
When compared to management-level employees working
a similar role in other establishments, it’s clear that the
profit of franchisees is higher. Moreover, since they’re also
the owners of the franchise, they have more power to make
decisions that will profit them. 
 Demerits of Franchisor
⚫Absence of adequate protection
In India, franchisees do not get adequate statutory
protection. There is no specific law for franchising. So,
franchisors do not disclose adequate information about
their franchise. Consequently, there is no transparency in
the operation of the franchisor. But in some countries like
USA, specific laws have been enacted giving protection to
the franchisees.
⚫Competition from franchisor-owned distribution points
Of late, service firms avoid the role of middlemen by
establishing self-contained kiosks. Customers can place
orders directly with the service firms when kiosks are
operated at important centres. The recent shift towards
franchisor-owned distribution points has increased the
resentment of franchisees as the kiosks encroach the
market of the franchisees.

⚫Lack of perceived control

A franchisor charges a high fee from the franchisees. At
every stage, the franchisor interferes in the functioning of
franchisees. This gives room for friction between the
franchisor and the franchisee.