INNOVATION
The Business of Franchising
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ranchising is by no means a new concept. It is a great idea to consider if you are an entrepreneur looking to expand operations. Although this can be a great initiative for your business, it is important to note that each business model has its drawbacks as well as its benefits. Ultimately it will be up to the franchisee and franchisor to weigh the pros and cons before deciding what will be best for both parties. Now seems to be a good time as any to look into franchising. And although, there are reports that growth is slightly slowing, franchising remains a very strong industry. This is due to the impact it has on not only the businesses involved but also on the economy. The International Franchise Association (IFA) reports that the franchise sector created an estimated 11,000 new establishments and more than 150,000 jobs in the United States in 2013.In fact, franchising accounts for roughly 10% of new jobs in the United States. Total 2013 sales from the sector were expected to reach US$802 billion, which is a 4.3% increase since 2012. The concept of franchising involves different owners sharing a particular brand. In franchising, a parent company will allow entrepreneurs to use the company's trademark, brands and strategies; in exchange, the franchisee pays the parent company an initial fee and may also have to pay royalties based on revenues. As part of the franchising agreement –and in order to ensure brand consistency−the parent company will provide the
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By Alicea James
franchisee with support which includes training and advertising. When a parent company decides to franchise, it brings in the financial backing, dedication and manpower of a local franchisee to drive the business forward in a certain territory. This allows for quicker and cheaper network growth.
Advantages of Franchising
There are many well-known franchises in operation; McDonald's continues to be recognised as a premier franchising company around the world. More than 80% of their restaurants worldwide are owned and operated by franchises. Taco Bell, KFC, Dennys, Hilton Hotels and Resorts, Motel 6 and Ace Hardware Corp, are just a few of the many successful franchises in operation today. This only legitimises the viability of this business model. Here are some benefits of franchising: • Faster Expansion- Franchising is a cheaper and faster method of expansion as opposed to adding company owned stores. This method costs the parent company less when new stores are owned and operated by a third party. For the franchisee, there is no need to reinvent the wheel, all that it requires is proper replication of an already successful business formula and viola; you are ready for business.
• Better Market Penetration- One of the benefits gained from franchising (especially for the parent company) is that it