FRANCHISING

Food Franchises

by 

U-Franchise Asia
Non-Food Franchises

by 

U-Franchise Asia
 What is a Franchise?

◻ License to use an established brand

◻ Use is very restrictive – many rules to be followed.

◻ Provide a proven successful business format

◻ Entrepreneurship for people that are not particularly

entrepreneurial.
 Advantages of Franchising
◻ Buying a name/reputation
◻ Established markets
◻ Technical/management assistance
◻ Standardized procedures
◻ Quality standards
◻ Selection of location
◻ Facility design
◻ Quicker cash flow
 Disadvantages of franchising
◻ Loss of independence
◻ High initial fees
◻ High royalties and advertising allowances
◻ Contractual restrictions
◻ Inapplicable advertising
◻ Termination clauses
◻ Not receiving promised help
◻ Unsuitable products
◻ Lack of competitive advantage
 The Franchisee’s Perspective Things to Look For

◻ Proven operating location

◻ Credible top management

◻ Skilled field support staff

◻ A trade identity

◻ A proprietary operations manual

◻ Effective training programs

◻ Disclosure and offering documents

◻ Plans for advertising, marketing, PR and promotion

◻ A communications system

◻ Sufficient capital
 Franchising Agreements
Issue Questions to Resolve
Franchise fee Amount? One time? Per unit?
Royalties Amount? Percentage of net or gross? Sliding scale?
Quality control Quality specs? Monitoring practices? Rewards? Sanctions?
Advertising Fee? Local budget? National? Intensity? Messages?
Offerings Product line? Product mix? Requirements? Alternatives?
Equipment Required? Additional? Financing?
Location Site selection requirements? Franchisor aid? Financing?
Operations Signs? Hours? Maintenance? Décor? Personnel policies?
Reporting Types? Frequency? Auditing? Sanctions?
Disputes Resolution methods? Equity of resolution process?
Termination Timing? Causes? Sanctions? Recourse?
 Franchisee Guidelines

◻ Perform a self-evaluation
◻ Investigate the franchisor
◻ Study the industry and competition
◻ Study the Uniform Franchise Offering Circular
◻ Investigate the franchisor’s disclosure
◻ Know your legal rights and retain counsel
 The Franchisor’s Perspective

Advantages

◻ Faster growth
◻ Lower capital requirements

◻ Motivation – franchisors are owners of the franchise

◻ Control of locations

◻ Revenue stream – franchise fees/royalties

 The Franchisor’s Perspective

Disadvantages

◻ Reduced control
◻ Profit sharing

◻ Greater commitment to operating support

◻ Problem franchisees
TYPES OF FRANCHISE

◻ 3 main types of franchise:

• Product distribution franchise;

• Business format franchise; and
• Management franchise.
PRODUCT DISTRIBUTION 

FRANCHISES

◻ A product distribution franchise model is very

much like a supplier-dealer relationship.
◻ Typically, the franchisee merely sells the
franchisor’s products. However, this type
of franchise will also include some form of
integration of the business activities.
◻ Product distribution franchising is widely
known in the automotive and construction
industries.
PRODUCT DISTRIBUTION 

FRANCHISES

◻ Examples of famous product distribution franchise:

PRODUCT DISTRIBUTION 

FRANCHISES

Produces the syrup

concentrate

Sells the syrup

concentrate

FRANCHISEE Produces the final drink

Retail Stores
Vending Machine
Restaurants & F&B Operators
Outlets
BUSINESS FORMAT 

FRANCHISING

◻ In a business format franchise, the integration of

the business is more complete.

◻ The franchisee not only distributes the

franchisor’s products and services under the
franchisor’s trade mark, but also implements the
franchisor’s format and procedure of conducting
the business.
◻ Earliest recorded homegrown company that used
business format franchising was PANCAKE HOUSE.
It was franchising since 1978. PANCAKE HOUSE is
still active in franchising and has transferred
ownership a few years back.



In 1996, there were 94 companies using franchising
as their route to expansion and the number has
substantially increased to 481 in 2003. The success
rate is a good 90%.
◻ How much Investment is needed and what does this
cover?
• The Franchise package ranges from P9 million to P12
million. This includes the franchise fee, store construction,
equipment, furniture and fixtures, manpower hiring and
training and pre-opening marketing activities. However, the
investment cost varies based on floor area and locations,
i.e., Provincial areas, Greater Manila Area, Metro Manila
and others.
◻ What’s the floor area requirement?
◻ The required floor area ranges from 100sqm to 120sqm.
◻ How long is the franchise term?
◻ The franchise term for a Pancake House store is ten (10) years
and renewable for another five (5) years.
◻ Is there a standard store design?
◻ Yes, Pancake House provides, through an accredited architect,
the standard store design, layout, equipment and facilities
requirement.
Famous Examples

 A&W Restaurant known for its root beer came about in

1965. The first outlet was established in what was formerly
known as Highway 54 (now EDSA) near Araneta Coliseum. The
concept was a drive-in where women food attendants garbed
in mini-skirts, black stockings and in roller skates would serve
customers inside the comfort of their cars. Trays were clamped
by the side of the door and cold refreshing root beer in mugs
plus foot long hotdogs were served. The set-up was exactly
the same as found in the US branches during those years. 
 BUSINESS FORMAT FRANCHISING -

outlet in Sale, Australia outlet in Marseille, France

MANAGEMENT 

FRANCHISE

◻ A form of service agreement.

◻ The franchisee provides the management

expertise, format and/or procedure for conducting
the business.
Famous Examples
Why is franchising important to SMEs?

◻ Leveraging on a recognized brand name

◻ Enhancing business image

◻ Ensuring consistent quality

◻ Attaining higher productivity/better motivated

staff
◻ Access to good locations

◻ Economies of scale

◻ Reducing risks of failure

PHILIPPINE FRANCHISE ASSOCIATION
 Franchising

Running your own business

by duplicating the success
formula of the franchisor

"Being Your Own Boss"

You are in a business for yourself, but

not by yourself. The franchisor is
always there to help.
Franchise Success Rate VS Traditional Retail

100

Franchise 100

50
90% 50

0%
% 0
1
2
3
4
5
6
Traditional
Years 7
8
Retail
9 25%
10
Franchise Growth in the Philippines
Foreign VS Local

2003 FOREIGN 330 (44%)

LOCAL 420 (56%) 750+
1999 FOREIGN 306 (60%)
508
LOCAL 202 (40%)
1995
FOREIGN 47 (43%) PFA Founding
Year
LOCAL 64 (57%) 111
1980
1970 45-50
15-20
 Ratio of Franchisors
Food VS Non-Food

Food 46%
41% 345
Non food 40% franchises
46.8%
54%
59%
47% 60%
405
48% 53.2%
70% 53% franchises
52%
30%
1995 1996 1997 1998 2000 2001 2003
 

The Philippine Franchise Association


▪Composed of 150 members

[from the industry leaders such
as McDonald’s, Pizza Hut, 7-
eleven, Jollibee, Netopia,
Caltex, STI, Francorp

▪ Member of Asia Pacific ▪ Recognized by

Franchise Confederation, the International
World Franchise Council Franchise
Association
 

The Philippine Franchise Association


▪ PLAYED a crucial role in the

growth of Philippine
franchising
▪ Aims to make the
Philippines the “Franchise
Hub of Asia”
SMALL SCALE: SME Development

• Putting up of incubation
centers during franchise
shows
• Creation of new generation
of entrepreneurs thru
seminars, training

- how to franchise your

business
- how to acquire a franchise,
etc.
MEDIUM SCALE: Nationwide
Development

Expand existing
franchise in the
Philippines into
nationwide
network of at least
100 units
 LARGE SCALE: International Promotion

• Export of top Philippine franchisors

Food & Non-Food

Local franchisors have penetrated the US, and Asia

but has yet to conquer the European market
◻ How much is the investment required for a
Jollibee restaurant?
• The financial requirement depending on the final store
size and facilities ranges from P30 to P40 Million.
◻ What is included in the investment?
• The investment includes the construction of the store,
kitchen equipment and facilities, furniture and fixtures,
air-con system, signage, and pre-operating expenses.