College
Finance In the Hospitality
Industry
What is franchising?
A franchise operation is a contractual
relationship between the franchisor and
franchisee in which the franchisor offers or is
obliged to maintain a continuing interest in
the business of the franchisee in such areas
as know-how and training; wherein the
franchisee operates under a common trade
name, format and/or procedure owned or
controlled by the franchisor, and in which the
franchisee has or will make a investment in
his business from his own resources.
Franchising
Franchising
A marketing system revolving around a two-party
agreement, whereby the franchisee conducts business
according to the terms specified by the franchisor.
Franchisee
An entrepreneur whose power is limited by a contractual
agreement with a franchisor.
Franchisor
The party in the franchise contract that specifies the
methods to be followed and the terms to be met by the
other party.
TYPES OF FRANCHISE
Product distribution franchise;
Business format franchise; and
Management franchise.
PRODUCT DISTRIBUTION
FRANCHISES
PRODUCT DISTRIBUTION
FRANCHISES
Examples of famous product
distribution franchise:
PRODUCT DISTRIBUTION
FRANCHISES
Sells the
syrup
concentrate
FRANCHIS
EE
Restaurant
s etc
Produces the
syrup
concentrate
Retail
Stores
Produces the
final drink
Vending
Machine
Operators
BUSINESS FORMAT
FRANCHISING
In a business format franchise, the
integration of the business is more
complete.
The franchisee not only distributes the
franchisors products and services under
the franchisors trade mark, but also
implements the franchisors format and
procedure of conducting the business.
BUSINESS FORMAT
FRANCHISING
BUSINESS FORMAT
FRANCHISING
MANAGEMENT
FRANCHISE
A form of service agreement.
The franchisee provides the management
expertise, format and/or procedure for
conducting the business.
MANAGEMENT
FRANCHISE
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
Termination clauses
Not receiving promised help
Lack of competitive advantage of parent company
WHY FRANCHISE?
Franchises offer important pre-opening support:
site selection
design and construction
financing (in some cases)
training
grand-opening program
WHY FRANCHISE?
Franchises offer ongoing support
training
national and regional advertising
operating procedures and operational
assistance
supervision and management support
increased spending power, access to bulk
purchasing
FranchisorFranchisee relationship
Common considerations of
franchises
Demand
Profitability of franchise, and length
of time required to recoup
investment
Track record of franchisor
Support rendered to other franchises