As the coronavirus pandemic forced more to stay at home and take time off their traditional work, more people than ever found inspiration in their business ambitions and are considering becoming a franchisee. As a result, the franchise industry is thriving throughout the UK. But as a non-traditional business approach, how does this all work? Let us explain…
What is a Franchise?
A franchise is the right or license granted by a parent company (the franchisor) to another person (the franchisee) to market and trade products and services under their brand in a specific area. The franchisee will, for all intents and purposes, operate as a branch of the parent company and will offer a consistent business approach in doing so through following strict guidelines and rules put in place by the franchisor.
How does a Franchisor make money?
Usually, a franchisor will charge an initial franchise fee for the permission granted to operate the business and will then take regular royalties as the franchisee operates. These royalties, sometimes a percentage of profits made, will cover training, support and marketing assistance as well as ongoing licensing permissions to use their brand. The franchise agreement is a contract that sets out these payments for a defined period of time and is usually renewed to continue business operation.
What types of Franchise business' are there?
There are three traditional types of franchise.
A Product Franchise gives a franchisee permission to sell a product using their brand trademark, logo or brand name.
A Manufacturing Franchise allows a franchisee to manufacture their product/s and sell them using their brand trademark, logo or brand name.
A Business Franchise licenses a full brand over to a franchisee with strict regulations in place for the operation of the franchise by the franchisee. This is by far the most popular type of franchise and is operated by the likes of Starbucks, McDonalds and Subway.
When you buy in to a Franchise, what exactly are you purchasing?
When becoming a franchisee, you are buying in to a business concept that is already proven as a success and fully operational. The exact manner in which the business is run and maintained in order to replicate this success is set out for the franchisee in an operations manual; which becomes the franchisee’s property upon purchase.
Usually, the franchisee will also receive thorough training on the business’ operational processes, trademarks, logos, branding, uniforms and other protocol. There is often also such training and assistance available on an ongoing basis. The license that allows the full franchising and sale of products, services and/or experiences is purchased and runs for a set period of time stipulated in the contract (franchise agreement) – usually between 5-20 years.
A franchisor does not cease to market their own brand and business just because they have franchised out operations elsewhere, and so the franchisee will also benefit from this on an ongoing basis. For example, when McDonalds launch an advertising campaign for their Big Tasty burger, each franchise restaurant is able to benefit from this marketing by selling the same product.
How did Franchising begin?
The first documented franchise dates back to the 1860s with one entrepreneur, Isaac Singer. Singer, now best known for the production of his sewing machines, had no way of producing, repairing and maintaining his machines on a scale large enough to cover the Unites States and so began licensing out servicing contracts to local merchants in different areas around the country. Later, he also licensed salesmen in the same way.
The concept of franchising grew quickly during and after the Second World War as people felt inspired to start from scratch and launch their own businesses. It was at this point that the likes of Coca-Cola and Pepsi started to outsource manufacturing franchises.
In the UK, one of the first companies to franchise was J Lyons & Co, who licensed out hamburger chain Wimpy in 1955; a brand that can still be found in franchised premises around the country today.
A lot of these examples are food and beverage businesses. Are these the only businesses franchised?
Franchising is a very popular business model amongst fast food and drink businesses but are by no means exclusive. Franchised businesses are found in all sectors of industry but are often somewhat ‘hidden’ – because if successfully delivering the brand consistency they should, there’s no reason that a customer or client would be able to identify a franchise over a central brand branch. Franchises are increasingly becoming part of the fabric of day-to-day life for many, it’s just that they’re not noticed.
What other business opportunities are similar to Franchises?
Franchising offers a wide array of new business opportunities but there are other models that operate similarly on partnership terms with a parent company and/or individual. These include Dealerships (often found in the motor industry but also home décor sector) where an existing business owner is licensed to sell a company’s product line/s, and Distributorships, where a business owner invests in specific equipment purchases and distributes them in relevant high traffic locations.
How do I know which type of business opportunity is right for me?
It’s important that anyone looking to begin their journey as a business owner thoroughly researches all the available opportunities and makes their decision on which to start on which feels most appropriate for them. Franchisees must be creative and robust entrepreneurs with a determination to succeed and a real drive to make things work, as well as a true passion for the brand. However, they must too have the skills to adhere to set guidelines, protocol and processes and to work for and with others as well as themselves.
Franchising can be a fantastic ‘in’ for those looking to build their own business empire but it is by no means easy. Only the strong succeed; and the benefits can and will be vast.
Want to learn more about Franchise Business?
Check out our handy article about what to consider when looking into franchise businesses, or how to prepare for starting a franchise business. Or, if you are ready to have a chat with our team, then get in touch with us today!