20 March 2012
Definition: A group of businesses with a set of common guidelines that belong to a network. The networked group dispenses licences for single business operators to promote a set of services or products. Most franchise networks issue licences to set up outlets in set areas. A franchised outlet is most commonly operated by an independent manager that takes part in decisions affecting the entire business network. For example, a single Pizza Hut shop operator can get a say in how the chain?s advertising funds are spent.
Let?s take the case of setting up a new ice cream parlour. A new operator has the option of starting up a shop on his own. This means he will have to start researching & buying shop equipment, fridges / serving utensils, arranging for a shop lease, setting up a marketing plan etc. Or he could contact a franchise network, such as ?Movenpick?, and request to join them. The head office of the franchise will evaluate the operators? individual circumstances, get him to agree to lease and sign a contract. After the contract and the initial agreement, the franchise network will supply the new equipment and setup manuals as to how to get the new outlet up and running. The amount of help / guidance from head office does vary in each chain.
The popularity of franchises has risen significantly in the last few decades in Australia. A whopping $130 billion a year is estimated to turnover in franchised businesses. There are many options on offer in a range of industries.
McDonalds is possibly the most successful network. With over 30,000 locations, $25 billion in annual turnover, 1.5 million employees, and 70 million daily patrons in 130 countries ? they are 2nd to no other chain. 33% of all Australian takeaway meals are served by McDonald?s. Starting in 1940 from 1 shop, it grew exponentially after changing their business model be based on mass production.
Different franchised networks have different degrees of exposure. New Zealand has the highest number of franchises per citizen, with over 400 networks operating and a population of three million. India, on the other end of the spectrum, is crippled with regulations and foreign ownership restrictions and therefore lags behind the rest of the developed world. China?s franchise industry has seen a huge increase in the last decade with over 2000 KFC locations opened, at double the pace of their rival ? McDonalds.
In Australia, franchising is regulated by the ?Franchising Code of Conduct?, under the Trade Practices Act of 1974. This code requires franchise network operators to produce a PDS which must be given to the new owner at least 14 days before entering an agreement.
Franchised shops & outlets enjoy a lower rate of failure in comparison to other businesses. Being part of a chain does pay off as the vast experience from previous setup attempts is handed to new owner / operators. Some new comers in the industry start off as part of a chain, and then proceed to build their own franchised chain.
Suzie Snezner is an Author and writer for franchise opportunities a business which she has just written a comprehensive article about What is A franchise to help small business people have a complete understanding of this business arrangement.
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- Invest and come to be a top golf franchise
- Pros and cons of owning a gas station franchise
- Financial Services Franchise
Source: http://okanaganbusiness.com/what-is-a-franchise
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