HRIM 164
Date: 19 September 2023
Topic: Introduction to Franchising
Franchising
Expanding a business through distribution of goods and services through a licensing
agreement.
o Highly efficient, tested way of expanding a parent business.
It is one big trading business.
Franchising is like a marriage.
o What happens to one will happen to the other, so you have to get along with
each other.
Two Major Players
Franchisor – gives the individual or company the right or license to conduct
business under its trademark
o Usually, they prefer to give to individuals over companies.
o Specifies the products and/or services to be offered.
o Provides the operational system, brand, and support.
Franchisee – who is given the right
Topic: Choosing a Franchise
Date: 26 September 2023
Tips in Choosing the Right Franchise
Rely on your own decision, not on franchising agents
o You have to have some level of love or belief for the product
Don’t expect to get rich quickly
Use your time and money in franchising intelligently
Managing a Franchise
What are your objectives?
o Consider the risk continuum (Risk-Return Trade Off)
Low risk, high cost, low return Existing Outlet, Name-Brand,
Franchise
Medium risk, cost, return New Outlet, Established Franchise
High risk, low cost, High return New Outlet, New Franchise
o Do not romanticize the business
Strike a balance between logic and emotion. Both a shrewd and an
emotional businesspersons do not care about the industry. The former
cares about making money and the latter, wants the franchise she
always wanted.
o Search horizontally
Check various industries
o Identify a growth industry
Magazines, newsletters
o Check sources
Franchise source guides
Franchise trade shows
o Identify the candidates
Types of Franchise Outlets
Quick Service Restaurants
o Burger
o Pizza/Italian
o Ethnic (except Italian)
o Sandwiches
o Coffee
o Self-service
o Traditional/varied – inexpensive restaurants and places selling local food
o Retail/Convenience – take-away offering, packaged food on the go
Casual Dining Restaurants
Bar Restaurants
Coffee Shops
Convenience Stores
Food Carts
Bake Shops
Spas
Ice Cream Shops
Researching a Franchise
Visit the franchisor
Obtain and analyze documents and forms
o Reading the Franchise Brochures
Cover blurb and introduction
Explanation of a concept
Analysis of the market/industry and the franchise’s niche therein
Background of the company and/or its principal personnel
Talk to current franchisees
Look at earnings claims
Aims to education on
o Franchising in general
o Market for the industry
o The individual franchise itself
A list and explanation of the franchise’s advantages
Conclusion and call to action
Discover areas that were not included
Evaluate further the franchise-candidates
o Industry
Up, down, static?
Stable?
Forecasts?
o Selling more or fewer franchises?
o Is growth true or temporary?
o Gross sales of franchised units?
Avoid Franchises that have
Single-fad product
Legal problems or multiple failed franchisees
Declining unit sales or below industry averages
With limited ongoing support or advertising
Date: 03 October 2023
Topic: Advantages and Disadvantages of Franchising
Advantages of Franchising
Resource Theory
o Making money from other people’s money
Mechanism for deeper market penetration
o Some parent companies prefer to have more franchisees than company-
owned business, so that they don’t have to employ so many people to
manage the businesses they own innately
Reduces franchisee’s risk of business losses
o A franchise is already an established model.
Healthy and strong franchisee-franchisor relationship (i.e. success of franchising).
o Establish a good relationship and communicate well with the franchisee.
Disadvantages of Franchising
Agency Theory
o The owner’s goals might be different from those who run the day-to-day
operations.
o There arises a Moral Hazard and Adverse Selection problem.
Promotes mediocrity
Stifles creativity and individuality
Requires a certain degree of obedience to standards
Qualities of a Potential Franchisee
Eager to learn-teaching system
Willing to work extended hours
Excellent people skills
Sales ability
Resistance to stress
Ability to take directions
Having money in reserve
How ready are you to franchise?
Size
o Is the business large enough to convey an image of success to potential
franchisees?
Longevity
o Are operations long enough to have reached a solid level of success?
o Are operational problems become fewer and less frequent?
o Can the level of sales and market share in the immediate and long-term
future can be predicted?
Profitability
o Is the business making money? If not, how can franchisees profit?
Teachability/Trainability
o Can other people be taught to run the business the way you run it?
System replication
o Can you render your operation in an understandable written and/or illustrated
instructions?
o Can these be followed without the background knowledge about the business
to a successful end?
Marketability
o Can the business be effectively communicated and sold to others?
Transferability
o How universal is the business?
o What is the scope of your products or services? Local or international?
o Will it work in different economic or cultural segments of your own market?
Originality
o What is your USP?
o What makes your product/services a cut above the rest?
Affordability
o How profitable is the business for your franchisee?
o What is the bottom line after paying all the fees?
o Does your franchisee earn profit the way you do?
Date: 07 November 2023
Topic: Franchisable Business Concepts
Franchisable Business Concepts
Check what is a hot concept and what is not.
o Easily replicated, easily operated
o Novel idea or new twist in a proven market
o With broad concepts enough to fit their market aims
o Not personality, site or fad specific
Check status in the market
o Stable? Mature? Embryonic?
Developing a franchise package?
Franchisable business concept
Product/service offerings
Market surveys
Sources of financing
Preparing the operations manual
Setting up a prototype unit
Packaging a franchise
Product and Service Offerings
Are you offering products?
o Menu line up/mix
o In-store production, commissary, or combination? Ready-to-eat ingredients?
Ready-to-use ingredients?
What services can you offer?
o In-store service? Delivery? Take out? Drive thru?
Market Survey
Interview
FGD
Product survey
Observations
Source of Financing
Personal equity or bank loan
Parts Operations Manual
Company Profile
o Introduction History, landmarks, philosophy, VM statement, organizational
chart, and administrative staff
General rules
o Critical points
o Quality expectations
o Customer relations
o Procedure and policy controls and inspections
o Warranties, maintenance requirements
Recipe Manual
o Menu
o Recipes portion, yield
Accounting Manual
o Cost Sheets
o Financial statements
o Food and paper costing
o Labor costing
o P&L Statement
o Balance sheet
Kitchen and Production Manual
o Food purchasing
List of accredited suppliers
Product specs
Forecasting
Buying methods
Regulatory agencies and control
Ethics in buying
o Receiving, Storage, and Issuance
Receiving, storage, and issuance procedures/standards
Inventory control or procedures, time/temp standards, and forms
o Food production
Pre-preparation and preparation procedures/standards
Forecasting/planning, production sheets
Time and temperature controls
Recording of time and temperature readings, frequency, and forms
o Storage, holding, reheating
o Packing, plating
o Handling of leftover food
o Delivery and Service Procedures
Presentation/plating, time and temp standards, and uniformity
Marketing Manual
o Advertising policies and procedures
o Local Store Marketing (LSM)
o Promotional activities
Customer Relations
o Telephone numbers
o Handling customer complaints
o Relating with external and internal customers
Personnel Manual
o Employee-management relations
o Recruitment and selection
o Training and development
o Motivation
o Maintenance
Maintenance Ma