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FRANCHISING
Evolution of Franchising
 The concept of Franchising as we know today 1st started in
Germany in 1840.
 In 1851, Singer Sewing Machine Co. began granting
distribution franchises for its sewing machines. Thus
began the modern concept of franchising.
 The root word “Franchise” comes from old French meaning
privilege/ freedom. In middle ages a franchise was a
privilege/ a right.
 Essentially a marketing concept, Franchising is an
innovative method of distributing goods and services.
What is Franchising?
Legal definition of Franchise:
 Black’s Law Dictionary 7th edition
1999 defines Franchise as, “the sole
right granted by the owner of a
trademark or trade name to engage in
business or to sell a good or service in
certain area.”
oA franchise is a license granted by a
business to another business to make and
sell goods/services.
oA franchisor is the owner of the business
who grants the license.
oA franchisee is the person who
purchases the business name.
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Normally referred to as
“Business Format Franchising”
A contractual long-term relationship
Grant of a licence to franchisee
Franchisee gets:
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Tried and tested product/service
Profitable proven business model to follow
Experience and know-how of the franchisor
Entitlement to use the trade name / mark
Entire package
Franchisee Rules
• You must use the franchisor’s suppliers
• You must use the franchisor’s equipment
• You must follow the franchisor’s rules and regulations
• You must give a share of your profit or sales to the
franchisor
EXAMPLES
EXAMPLES
TOP Rated Franchise ( 2009 )
Advantages OF FRANCHISING
 Your business is based on a proven idea. You can check how
successful other franchises are before committing yourself.
 You can use a recognized brand name and trade marks. You benefit
from any advertising or promotion by the owner of the franchise - the
'franchisor'.
 The franchisor gives you support - usually including training, help
setting up the business, a manual telling you how to run the business
and ongoing advice.
 You usually have exclusive rights in your territory. The franchisor
won't sell any other franchises in the same territory.
 Financing the business may be easier. Banks are sometimes more
likely to lend money to buy a franchise with a good reputation.
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 You benefit from communicating and sharing ideas with and
receiving support from other franchisees in the network
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 Relationships with suppliers have already been established.
Disadvantages OF FRANCHISING
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Costs may be higher than you expect. As well as the initial costs of
buying the franchise, you pay continuing management service fees
and you may have to agree to buy products from the franchisor.
The franchise agreement usually includes restrictions on how you
run the business. You might not be able to make changes to suit your
local market.
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The franchisor might go out of business.
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Other franchisees could give the brand a bad reputation.
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You may find it difficult to sell your franchise - you can only sell it to
someone approved by the franchisor.
All profits are shared with the franchisor