create a franchise or open your own outlets
When developing his network, an entrepreneur faces a choice: open his own outlets, or package a franchise and open partner outlets, receiving royalties. In this article I will try to describe in more detail the arguments for and against each alternative.
Naturally, in this article we are talking about a successful network, time-tested and suitable for opening a franchise according to all criteria. For convenience, let’s take a public catering network as an example, because this example is more familiar to me personally. In this article I will try to list all the pros and cons of franchising and summarize, which will be the conclusion of the analysis.
Arguments for own outlets
Own retail outlets bring in more money.
If we consider the Finnish restaurant model, in most cases you can see a profitability of about 25% -30%, that is, with a turnover of 1,000,000 rubles, the owner of such an enterprise will receive 250 - 300 thousand rubles.
If the cafe is opened under a franchising program, the founder will receive a lump sum fee as well as a royalty, which will be 3% -5%. That is, with a turnover of the same million, the turnover will remain 30-50 thousand rubles plus the lump-sum contribution paid at the start. At the same time, these amounts must be deducted from the costs of maintaining franchise points, as well as the costs of opening points.
Naturally, there are other sources of profit for the franchisor, but in the end, your own facility still brings in more.
Many opinions and points of view from the franchisee.
Each franchisee is an entrepreneur with his own experience, his own position and view of the business. Naturally, it is easier to come to an agreement with your full-time employees than to agree on something or decide something with the franchisee. However, there is an excellent solution to this franchising vulnerability. If all your processes are standardized and streamlined, your business works like a machine and brings profit to its owners, there is practically no reason left for approvals and decisions, because there are rules, you just need to follow them.
Difficulty of modernization.
For the reasons described in the previous paragraph, the modernization of a franchise network will occur more slowly than in its own network, where all employees are hired specialists and are subject to orders from above.
The commercial concession agreement should clearly define the system of your relationship and such a problem will not arise. Otherwise, you will have to prove to every partner in your large network that napkins should be black and not white, as he is used to. Also, as in the previous paragraph, clarity of the rules and a detailed system of relationships will protect against the problem of this paragraph.
Competition within the franchise network -
this is something that happens very often with fast-growing companies. Naturally, the franchisee wants to be the only representative of your brand and is very sensitive to proximity to other partner or your own outlets. In reality, no matter how far away the objects are, the franchisee will always feel that the “friendly” point is taking customers away and the presence of such a competitor affects the decline in sales and turnover.
If we consider the Finnish restaurant model, in most cases you can see a profitability of about 25% -30%, that is, with a turnover of 1,000,000 rubles, the owner of such an enterprise will receive 250 - 300 thousand rubles.
If the cafe is opened under a franchising program, the founder will receive a lump sum fee as well as a royalty, which will be 3% -5%. That is, with a turnover of the same million, the turnover will remain 30-50 thousand rubles plus the lump-sum contribution paid at the start. At the same time, these amounts must be deducted from the costs of maintaining franchise points, as well as the costs of opening points.
Naturally, there are other sources of profit for the franchisor, but in the end, your own facility still brings in more.
Many opinions and points of view from the franchisee.
Each franchisee is an entrepreneur with his own experience, his own position and view of the business. Naturally, it is easier to come to an agreement with your full-time employees than to agree on something or decide something with the franchisee. However, there is an excellent solution to this franchising vulnerability. If all your processes are standardized and streamlined, your business works like a machine and brings profit to its owners, there is practically no reason left for approvals and decisions, because there are rules, you just need to follow them.
Difficulty of modernization.
For the reasons described in the previous paragraph, the modernization of a franchise network will occur more slowly than in its own network, where all employees are hired specialists and are subject to orders from above.
The commercial concession agreement should clearly define the system of your relationship and such a problem will not arise. Otherwise, you will have to prove to every partner in your large network that napkins should be black and not white, as he is used to. Also, as in the previous paragraph, clarity of the rules and a detailed system of relationships will protect against the problem of this paragraph.
Competition within the franchise network -
this is something that happens very often with fast-growing companies. Naturally, the franchisee wants to be the only representative of your brand and is very sensitive to proximity to other partner or your own outlets. In reality, no matter how far away the objects are, the franchisee will always feel that the “friendly” point is taking customers away and the presence of such a competitor affects the decline in sales and turnover.
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The case for franchising
Regional factor.
We live in a huge country: vast in territory, different in population composition, market conditions, with its own cultural and legislative characteristics and different time zones. Just imagine that tomorrow you will have your own restaurants in Irkutsk, Tomsk, Yuzhno-Sakhalinsk. Ready? And if there are 10 restaurants, and if there are 50, all of them are 100% owned by you, all employees are accountable to you, and the fate of the entire network sometimes depends on the daily actions of these employees. Naturally, there are examples when your own network reaches such a scale, but this takes time and requires a huge structure.
A logical observation may arise that when opening franchise restaurants there are all the listed regional difficulties. I assure you that the next paragraph will finally close this issue.
The franchisee risks his own money,
which means that he is more interested in the result and success than anyone else. It is simply not profitable for him to let things take their course, and that is why you can rely on him much more than on hired employees, who are not always interested in increasing the company's turnover. The partner is interested in optimizing costs and is interested in ensuring that only the best personnel work for the company. By the way, it is for this reason that you should refrain from working with partners who want to pay a lump sum in installments, reduce investments in opening, and share the costs of opening a point with the founder. Agreeing to such proposals means disrupting the correct operation of this wonderful item.
Regional expertise.
I decided to highlight it in a separate paragraph, because in addition to the structural advantage described in the previous paragraphs, franchising allows you to find strategically valuable partners in the regions who not only have experience and know their region, but have reputation, influence and connections that cannot be obtained by opening points from Moscow. There is a risk of remaining “guests from the capital” forever.
Franchising speed -
This is what is perhaps the most compelling argument in favor of franchising. Other tools do not provide such speed of dissemination of your brand.
Conclusion
Franchising is a unique tool that allows you to quickly and rapidly develop your network, ahead of competitors, occupying priority regions. At the same time, franchising is complex in its application and its implementation has some hidden dangers and contradictions. Therefore, the development and implementation of a franchising program must be properly planned and implemented into the daily operation of the network.
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