Franchise - advantages and disadvantages of this method of doing business
The Polish Franchise Organization reports that the Polish franchise market has grown in the last 13 years from 50 to over 900 franchise companies. According to the report of the PROFIT system consulting company, at the end of 2013, there were already 941 companies of this type in Poland. Franchise systems of domestic brands dominate - 85%. Last year, 101 franchise companies were added, most in the catering, food and clothing sectors, while as many as 52 companies closed their activities. Such a large discrepancy between emerging and failing businesses may result from the characteristics of the franchise. What is a franchise and what are its advantages and disadvantages. Read and check!
What is a franchise?
Franchise is a way of doing business. There is a relationship between the franchisor and the franchisee. Their cooperation is determined by a written contract. Franchising is running your own business under the name of a different brand. It is an interesting option for start-ups - the opportunity to work under the wings of a more experienced business partner. Of course, this is not a philanthropic activity, the franchisor is also counting on profits. A franchise has its highlights and shadows, for both a strong brand and a franchisee.
Franchise - advantages for the franchisee
The main advantage for the franchisee is the sense of security resulting from buying a ready-made, proven idea that has already been successful on the market. A well-known brand is supposed to act on customers like flypaper. There are macro savings. The franchisee naturally benefits from the brand's advertising campaigns.
The franchisor shares with the partner not only the brand, but also the know-how. The franchisee can count on professional help and training all the time. Assistance usually includes: assortment assortment support, location selection, business audits, accounting and employee recruitment training.
Another advantage is the lack of the need to have large capital to start a business. An entrepreneur doesn't build a business from scratch. He gets a ready brand, logo, training for himself and his employees, knowledge, substantive assistance and clients attached to the brand. At the start, this gives you less risk and greater credibility. Thanks to brand recognition, you can forecast profits.
Thanks to the franchise, you can get better terms of cooperation with suppliers and contractors. The franchisor negotiates terms with suppliers for the entire network. As a bigger player, he can negotiate better solutions.
Franchise - advantages for the franchisor
Thanks to the franchise, the franchisor develops the brand. First of all, it increases the distribution channels for goods and services. This obviously translates into deeper market penetration and limitation of the market space for competition.
The franchisor gains loyal partners who care about their success, and thus contribute to the success of the entire brand. Thanks to the transfer of know-how, he does not have to manage a huge network of his entities. He also does not personally control the growing network of personnel. It saves on HR administration.
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Franchise - disadvantages for the franchisor
The franchisor also bears the risk of granting the franchisee license. A network of franchise companies can prove difficult to control over time, especially as it grows outside the country.
The risk also applies to the selection of franchise partners. The contractor may turn out to be dishonest and its staff unreliable. Dissatisfied customers will have a negative impact on the perception of the brand. Moreover, a dishonest franchisee may use the known know-how against the brand.
Franchise - disadvantages for the franchisee
A franchise can also pose a threat to the franchisee. The recipient has to pay the initial fee for granting the license, and for the entire duration of the contract, pay the franchisor the percentage of turnover specified in the contract. A novice entrepreneur, despite having a strong brand, can find it difficult to earn the costs of maintaining the premises, hiring employees and fees for the franchisor, let alone think about profit.
The franchisee has significantly limited independence in running a business. It is under the control of the franchisor. Each innovation or idea must be approved by the brand owner. This happens even when the fate of the franchise business is at stake.
The franchisee is responsible for the wrong decisions and crisis situations of the brand. In the first place, they affect the purchasing preferences of customers. If they decide to boycott a given brand, the franchisee will suffer the most.
Interestingly, the development of multifranchisers has recently been observed. One entity becomes the owner of several franchise companies. McDonald's has the largest number of multifranchisers - 70 percent of its network. franchisees run more than one restaurant.