Franchise: To be or not to be?


If asked, we can all name a number of product and service oreineted brands that are franchise based, including brands like Baskin Robbins and Subway which have an international footprint. However what prompted you to be apart of the franchise? As a franchisee, what does the franchise mean to you? Answers to this are only possible by understanding what the franchise is about and identifying those specific issues you relate to. A Franchise is generally described as the practice of using another firm's successful business model. "Franchisee perfection"; the business journal goes further to break down the types of franchises available into three categories based on what aspects and extent of the business is provided to franchisee for adoption by the franchisor: 

“1. Product Franchises. 

Manufacturers use the product franchise to govern how a retailer distributes their product. The manufacturer grants a franchisee the authority to distribute goods by the manufacturer and allows the owner to use the name and trademark owned by the manufacturer. The franchisee must pay a fee or purchase a minimum inventory of stock in return for these rights. Examples of Product Franchises include: Mobil, Goodyear, and Ford Motor Company. 

2. Business Format Franchising. 

is defined as the most popular form of franchising. In this approach, a company provides a franchisee with a proven method for operating a business using the name and trademark of the company. The company will usually provide a significant amount of assistance to the business owner in starting and managing the company. The franchisee pays a fee or royalty in return. Examples of Business Format Franchises include: McDonalds, Dunkin Donuts, and Subway. 

3. Manufacturing Franchise. 

These types of franchises provide an organization with the right to manufacture a product and sell it to the public, using the franchisor's name and trademark. This type of franchise is found most often in the food and beverage industry, but can be applied to other industries. Examples of Manufacturing Franchises include: Coca-Cola, and Sealmaster.”

Why franchise? Research indicates that a huge number of businesses fail within the first 36 months of operation because they lack the relevant systems required for them to operate. A franchise especially a business format franchise like subway provides a collection of systems under a recognized brand name that as a new independent business may take years of operation to develop and require huge capital investments. Just looking into a franchise like subway (that I was privileged to be a part of for almost a decade) inside out or outside in, Operations in all their locations is based on systems running exactly the same. From ordering the gold standard products, to veggie preparation, pre portioning meats, displaying Graphics, to using their most current Subway payment software everything in the subway franchise locations are a well researched system. In addition to which this familiarity of system serves to cater, in effective customer expectation management. For a franchisee this frees resources to develop other location unique aspects of their store within it’s local market. 

"Business owners tool kit"; a business guide journal attests that most people are attracted to franchises because the best ones like subway have proven to be extremely successful over the years, and they combine many of the benefits of business ownership with the brand name, experience, and economies of scale provided by the established corporate franchisor. In fact, as already mentioned, statistics show the trend that good franchises generally have a higher success rate than other types of businesses. Like all else in exploring the franchise business, there are pro’s and con’s that need consideration to be a successful franchisee as you set your goals:

What are the advantages being in a franchise like subway provide?

  1. Subway is a reputable franchise with a proven business method which minimizes the investment risk.

2. Subway in an internationally recognized brand, with a well known name which customers identify with , this alone ensures customer patronage and provides a competitive advantage for a subway franchisee.

3. Subway has a training system it provides to franchisees about the business operation and the QSR industry even if the franchisee has no prior experience with continued training as the markets develop/change.

4. Subway provides operational support to their franchisees and problem solving capabilities.

5. The size of the subway franchise provides economies of scale when negotiating for operational goods and services.

6. Subway cooperative Advertising programs provide national/international exposure at an affordable price.

7. Subway will also generallyassist the franchisee in obtaining financing for the franchise. IPC their purchasing corperative currently has programs that are very competitive. Lenders are also more inclined to provide financing to franchises because they are less risky than businesses started from scratch.

8. Subway does provide assistance with site selection, reviewing location demographics and its ability to support the business.

 

On the other hand others may shy away from the franchisee like subway because of ;

1.Franchise fees. Franchise fees are required to be paid to the franchisor in this case subway at the inception of the franchise agreement. These fees can range from a few thousand dollars to hundreds of thousands of dollars depending on the franchise.

2. Royalties. The cost of a subway franchise includes a monthly royalty (fee) based on a percentage of the franchisee's sales.

3. Loss of control. Franchise agreements usually stipulate how the franchise operates. The franchisee must adhere to the standards in the franchise agreement, which thereby leaves the franchisee with limited control over the operation but on the other hand serves to manage customer expectations more effectively and provides a level of security to all those operating under the same brand name that could be affected by a negative variation by any specific franchisee.

4. Required purchases. A franchise like subway requires the franchisee to purchase certain materials for the purpose of producing uniform franchise products. In some aspects this is an advantage especially in situations where containment is necessary due to recalls and managing customer expectations through product standardization

5.Termination clause. A franchisor like subway requires that it retain the right to terminate the franchise agreement if certain conditions are not met. The franchisor may then terminate the agreement and offer the franchise location to another. This provides an advantage to the rest of the franchisee’s because in the event that a specific franchisee operations threatens the brand name and therefore all those operating within the brand name, their investments are protected by the franchisor having the right to terminate the agreement before extensive damage is done.

However even with a successful business model and systems provided, success of an individual franchisee in a specific franchise is directly dependant on aligning their goals to the franchisor goals to provide a clear direction in their own specific operations

Goal-setting usually requires forming specific, attainable, practical, measurable and time-targeted objectives. Goals provide a clear direction and is an effective tool for making progress by ensuring that you (franchisee), PIC’s and staff have a clear understanding, and awareness of what must be done to achieve or help achieve an objective.

Goals can be long term, short term and can definitely be changed to address external stimuli at a specific period. In a store, setting goals “paces” the operational activities the staff do on a daily basis; Cleanliness, sanitation, décor, customer service, equipment maintaince; giving a purpose to what they would otherwise see as mundane tasks.

For example: increasing sales, require increase in customer counts and units sold. How then do you achieve the increase in customer count, units sold and therefore sales? As usual the basic store operations can prove to make the difference and or the primary foundation;

-Maintaining a clean store = positive customer retention, 

-Proper sanitation = food safety/minimized liability = positive customer retention /secure profitability.

-Well maintained Décor = positive customer environment = positive customer retention

-Well maintained décor is also = positive work environment = positive staff = good customer service = positive customer retention.

With the number of tasks in the store this could go all day. Being familiar with store operations we all appreciate the fact that different aspects of store operations feed off each other hence the significance of making sure all areas are at their optimum. An effective way to do this is to breakdown store goals into operational aspects the staff can easily focus on and achieve. Examples are like check lists that staff need to understand the “purpose” of. 

The purpose of which need to be communicated during the store staff meetings.

Considering the larger picture one would ask, What is the purpose of all the “trims”? Evaluations, rally’s and convention? These serve to communicate goals, internalize them, to be able to identify with them, ensuring profitability and provide a purpose that lends itself to store and brand goals. 

This is just the same thing, employee meetings, retention programs, continued training do in the store level they help staff identify store goals, internalize them, to better integrate them into operations giving the store operations the much needed direction that draws us ever closer to the sales goals we all so desire to achieve.

Originally on the MidAtlantic; Subway Development Corporation of DC franchise newletter

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07 Apr 2018


By Beverly Jalango
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