How does one Franchise?

[Ice Burn]

I am going to Franchise and I need advise on what to do. Please help!

What does one need to know regarding Franchising?

Thanks!

[KuyaDanny]

Ice Burn, before we answer your question, we need to know: are you the franchisor or the franchisee?

[Ice Burn]

I am going to Franchise an establishment. I already got info from the owner and now I'm scouting some places.

I need to know other info regarding franchising. As a franchisee, what should I know and learn?

[nix]

- Payback Period for your franchise -- 1 year should be good.

- Ask for some referral numbers of existing franchisees and interview them.

- Marketing support.

- Option to extend the engagement -- 5 years is a good franchise lifetime.

- There should be some zoning protection. For example, no same brand within a 2 kilometer radius.

- Support in finding a location.

- Financing support (Some groups actually provide a pay as you grow payment scheme)

- Look for ways of cutting down costs. For example, the franchisee will give you a list of accredit suppliers and contractors, scout for one of your own that is cheaper, and inquire if you could use your resources instead for as long as the specs are the same.

- If it's a stall/booth type franchise, you may be able to get a volume discount if you franchise more than one outlet.

- Training. They must provide ample training for you and your staff.

The most important success factor really is location. That would of course, have to depend on you.

[NoisyCricket]

This happened to a friend of a friend of mine, Ice Burn. It may be 2nd hand info, but it REALLY happened. I want to avoid getting the exact names, dates, and figures for you if you don't mind. Let's just keep this to ourselves, and learn from it.

COMPANY X (one of the LARGEST Filipino restaurant chains here in the Philippines) allows people to franchise their restaurants, so what happened was they told the prospective franchisee(r) to do the research.

Find a site. Do the research. Know the figures. Make sure there was sufficient traffic in the area. Scour the locale. Calculate the projections. Prepare the franchise application.

So she did. And she was VERY THOROUGH. SHE REALLY WANTED THE LOCATION. IT WAS PERFECT. SHE WAS SO SURE THAT COMPANY X WOULD APPROVE IT.

IT WAS PERFECT. TOO PERFECT.

Guess what the restaurant did? They TURNED DOWN HER PROPOSAL.

She asked why it was turned down. Company X said her figures were wrong.

She didn't pursue it any longer. What could she do?

THREE MONTHS LATER there was a new restaurant in EXACTLY the location she suggested.

This time, it appears, the figures were correct. :confused:

[This message has been edited by Noisy Cricket (edited 09-04-2000).]

[nix]

Yup, heard the exact same story before.

[NoisyCricket]

Originally posted by nix:
Yup, heard the exact same story before.

K U P A L, man! :mad: http://smilecwm.tripod.com/net6/RocketQ3.gif

[This message has been edited by Noisy Cricket (edited 09-05-2000).]

[frenzy]

Oh well, you got the details.

[Ice Burn]

Yeah, heard of that story before, yan ang hirap kapag big name franchise ang ginagawa but at least the owner of the establishment that I am franchising is really nice and all. They're willing to really help me because they think that I'm so responsible for starting a business at age 20. http://www.pinoyexchange.com/lol.gif http://www.pinoyexchange.com/lol.gif http://www.pinoyexchange.com/lol.gif

I won't be franchising anything big name. Maybe in the future when I have enough money.

Yeah, I need to know a very nice location, with lot's of people, more on the Class C & D level or near some schools or offices (Katipunan is out! Too expensive!). Preferably somewhere in QC. I had some prospective locations already but of course I need to keep my options open.

[This message has been edited by Ice Burn (edited 09-05-2000).]

[KuyaDanny]

(Warning: this viewpoint is tilted to the cynical side.)

In typical franchise business models, the franchisor licenses a business idea to the franchisee, in return for a fee.

To preserve the integrity and "quality" of their business, the franchisor often compels the franchisee to observe a set of "best practices", eg - you must follow a certain design for your store, you must use specified signs, your employees must wear a certain uniform, and you can only sell "approved" or official products and services.

These "best practices" are enforced through "technology transfer", which consist of such methods as:

1) manual of procedures
2) training seminars (eg, Hamburger University)
3) audits and inspections
4) marketing agreements
5) supply agreements
6) all sorts of other agreements.

What this does is to create a quasi-monopoly relationship between the franchisor and the franchisee. You are often required to use "official" suppliers (usually owned by the franchisor), and sell your products at "official" prices (which could be too low).

If we can go back to our college economics, a monopoly situation "provides an opportunity to extract greater than free-market rents." In other words, you cede control of your profitability in return for the purported "advantages", such as technology transfer, economies of scale, and the reduction of risk assumed by the entrepreneur.

So you must judge whether any profit opportunities left after the franchisor has taken his share are satisfactory for you. Maybe it's still worth it if the product/service is world class and has great recall. But if it's starting out, or low-margin, or easily differentiable, maybe starting from scratch is the better way to go.

[This message has been edited by KuyaDanny (edited 09-05-2000).]

[KuyaDanny]

Originally posted by nix:
- There should be some zoning protection. For example, no same brand within a 2 kilometer radius.


This is important. You might be interested in knowing that on Boni Avenue in Mandaluyong, there's a Zagu outlet which has been operating for about three months. Last week I saw a sign go up. Another Zagu outlet was opening - less than 300 meters down the road. :(



[Edited by KuyaDanny on 09-26-2000 at 09:47 AM]

[Ice Burn]

Originally posted by KuyaDanny:
This is important. You might be interested in knowing that on Boni Avenue in Mandaluyong, there's a Zagu outlet which has been operating for about three months. Last week I saw a sign go up. Another Zagu outlet was opening - less than 300 meters down the road. :(



Is that legal? It was informed to me that all franchises were suppose to be within a 1 mile radius?

Besides, I have no intention of franchising Zagu. It's too overrated and the fad will die down withing a year's time. People should just buy a couple of blenders and some sago...

[KuyaDanny]

I doubt if there's a law about something as specific as this.

This is purely a financial decision by the franchisor. It must decide if the anticipated revenue from the new site (franchise fee and future royalties) is greater than the lost revenue (decrease in future royalties) from the present site. By awarding a franchise to this new site, it seems that the franchisor has decided that the answer is yes.

I am putting my cynic's hat back on again and am now wondering: what if this franchisor doesn't really care about the future royalties? This is possible if a) the royalty rates are low relative to the franchise fee, or b) the future revenues from the sites are highly uncertain. Then the franchisor's main source of revenue really is the franchise fee. The incentive, in this scenario, is to sign up as many franchisees as possible, with little regard for their profitability.

[gabriella]

hi iceburn!
if u dont mind...
what is the name of the establishment you are planning to franchise? how much is the franchise fee?
on what i have research in the latest food establishments

1.) EASYWAY P2M
includes 10 computer units for internet rentals, advertising, research etc... excluded of course is the place

2.) SUBWAY $10,000
im not sure what is included...

pls reply or email me
thanks!!!

:D :D :D :D :D

dapat tayo magpayaman!!! hehehehe
Good luck on ur business!

[Ice Burn]

The franchise fee costs about P500,000 pero kasama na lahat (training, hiring, studies and so forth). I should be spending around P1.5M. I will name what I am franchising some other time. Tama, in this day and age, dapat magpayaman. :lol:

[zimdude]

good for you Ice Burn to be enterprising... wishing you the best there :):):)

personally, I don't like franchising because I prefer something more "creatively your own."

[Ice Burn]

I prefer to do something creatively as well but Franchising is the best way to know the ropes. The things I will learn in this venture will help me in my future Restaurant ventures.

[zimdude]

thanks for explaining... hmm a Restaurant then... let's check it out sometime :)

[zimdude]

From KuyaDanny's MBA references, I found this -

http://www.bus.umich.edu/ft/lafontaine.html

[cianoy]

*bump*

I want to know more about franchising...

Any references? Good local sites or books

[latepinoy93]

You may want to look for the book McDonald's - Behind the Arches, or subscribe to Entrepenur Magazine. One gives you an idea of the trials and tribulations of franchising and the other shows you what's out there now!

[yuga]

try and visit this site for more info: http://www.franlinkasia.com

;)

[maxe]

About the zagu in Mandaluyong, it has the same owner that's why they allowed another zagu franchise.

[KuyaDanny]

OK. It might make sense to open a second store because the volume is large.

But I am still skeptical and now wonder why they needed a second store, when expanding the first store might have been the answer. Could it be because, by opening a second store, the franchisor collects a separate franchise fee?