The Business of Franchising: What Good (and Bad) Does It Bring?

We’ve seen countless brands sprouting everywhere, both domestic and international setups. Classic examples include fast food chains such as McDonald’s, KFC and our very own Jollibee . We’ve also seen how these companies have grown over time. These are just some of the famous brands that are patronising the franchising business model.

Franchising is actually a business strategy aimed at getting and keeping customers. It is a method for distributing products and services, a network of interdependent business relationships and a tried-and-tested marketing and distribution system.

McDonald’s is only one of the global brands you can franchise

Perhaps right now, you’re thinking of starting a business. The question is, should you start from scratch? Or do you see yourself manning a franchise? Let’s give the latter a thought.

The Ins of Franchising
• Marketing support. The greatest advantage of this business model is the help you can get from the franchisor. Remember that they are the ones who created and sold the idea first. You, on the other hand, invested in that idea. A franchise company may have spent a decade of perfecting the brand and concocting flawless marketing programs. Franchisees no longer have to exert much effort at concocting new methods because all they need to do is apply the information to their respective marketplaces and increase the revenue.
• Risk reduction. Most small businesses are doomed to fail because of weak management. With franchises, it’s a different thing. Franchisors make sure their investors get the managerial support they need. Any lapses in the outlets could possibly affect the whole brand — franchisors are very careful about that. Despite the perceived autonomy of the franchises, there are strong relationships interdependent of each other.
• Strong profitability. Most franchises stem from often-recognisable brands. You wouldn’t just risk millions of money in an unknown brand, unless you believe it has potential in it. Nevertheless, people are likely to patronise known brands — hence, the saleability.

The Downsides
• Lack of flexibility. You can only do so much as the franchisee after an agreement has been signed. You’ll be told how to run the business, how to make the most out of the location, which vendors to use, how to train the employees, etc. If you have the audacity and knack for new, unconventional strategies, then you might as well rethink owning an outlet.
• One reputation. Franchises of one company bring only one image. If one outlet experiences a scandal, other franchises will likely suffer. Unless the damage is controlled, your business can be vulnerable even in things you have no control over.
• Franchise fees. Franchising is expensive right from the start. Royalty fees on top of location costs, start-up costs and the like could take a lump sum on your projected capital.

Before deciding on getting a franchise, take a look at the franchisor’s portfolio and growth over the years. If you’ll ever give it a go, don’t forget to establish business relations with the franchisor. Video conferencing meetings with them will keep you updated on their latest strategies from time to time.

AUTHOR BIO
Loren Maluenda is a freelance writer working with Regus PH, one of the Philippines’ prominent providers of business solutions including serviced accommodation e.g. meeting rooms, office spaces, shared workspaces, virtual offices, video conferencing facilities. They are currently situated at Manila, Makati and Cebu.