Franchise is an exclusive right conferred by the parent organization to an individual or enterprise to use the former’s successful business model, in stipulated areas. Franchising is a relationship of the business; wherein the brand owner authorizes another party to use there brand, product, business system and process in return for adequate consideration. In finer terms, franchising is an arrangement, in which the manufacturer permits another firm, the right to use its diverse intellectual property rights such as trademark, brand name, technical know-how, designs, etc., in addition to the proven name, goodwill and marketing strategies, for a certain sum. Some of the most renowned f&b brands in food industry which operate on franchise model are Mc Donald’s, Subway, Domino’s, Dunkin’ Donuts, Pizza hut etc. Franchise in common man language is a way to grow and expand beyond the comfort zone of a limited geography with the help of instrument made by the franchising partner. Also for the franchising partner it is a way of getting into a sailing ship without making efforts of building a new ship and testing the water.
There are four types of models:
- COCO ( Company Owned- Company Operated )
- FOCO ( Franchise Owned Franchise Operated )
- COFO ( Company Owned Franchise Operated )
- FOFO ( Franchise Owned Franchise Operated )
COCO model is primarily run by the franchisor itself and a franchise partner only puts in a stake in the property. In this the franchise gets a guaranteed return and does not have to engage in its daily running. COFO model in this Company reserve ownership of the business but share operation of store/branch. In this model brand is looks for working partner who can invest in business also. Brand will take care of part of operational cost also and offer margin to cover remaining cost and partner profit. While in FOCO model the franchisee invests fixed cost, the running cost is borne by company and in return, franchisee gets a minimum guarantee or percentage of revenue earned and In this model franchisee owns the brand’s store but it is managed by company itself. Another franchisee model is FOFO model, FOFO (franchise owned franchisee operated) model provides the franchisee hands on opportunity to manage the daily operations, sales and marketing of the franchise. While aspiring entrepreneurs who have a large sum of amount in their account to invest in opts for FOFO model. While FOFO model of expansion is not preferred by many brands. This is because, after a year or so, the franchisees tend to take hold of things and doesn’t adhere by company policies, causing a decline in the brand value. A good example for this model is exclusive brand outlets where the brand operates the business with its staffs as per its standards and the business is owned by a local or national franchise.
There is vast difference between franchising of business which serve Indian cuisine and franchising of other brands. In businesses which serve Indian cuisine the menu size is vast, human involvement is there in preparation of products due to this we cannot get the consistent product. Central kitchen concept is not workable as majority of the products are prepared live while in other food brand the menu is very small, they work on the concepts of assembly of food, in their outlets food is assembled and served. In other food brands they don’t have the authority do any kind of modification of the product. In other food brands quality control is treated as a necessarily while in Indian food brands it is considered as a cost.
Now comes a question, what is the best franchising model for the Indian product? As per my knowledge and experience FOCO model is the best model if someone wants to go for the franchise. FOCO model in general allows an investor to put money in a venture and then follow up with the returns on investment in terms of Minimum Guarantee. Brands have to ensure a business sum , so that they can give the minimum guarantee to the investor. Brands who are confident on their operations and do not intend to put their capital to raise a store, offers FOCO model. The best part of the FOCO model is that it is operated by the company which helps in retaining the brand standards and quality control. No brand wants there product to be deviated, so they take extra care in that area. FOCO model assures risk free opportunity. In this franchise can get a minimum guarantee of revenue earned. It is risk free for the franchisee as franchisor takes care of entire store operations. Moreover, franchisee can focus their energies on the promotion and sales, leaving the operation and logistics to the brand company. It is a win win situation for both investors and consumers. Franchisor has lot to do in FOCO model as they can get the things done as per their norms taking the franchisee along.” The FOCO model is considered a cut above than other franchise models. It also allows the brand to run the outlets without the franchisee’s intrusion and get revenues timely.
Franchising is the fastest way of growing as multiple people investing into it but its also the fastest way of diluting the brand because you have handed over the brand to your franchising partner who has low loyalty towards the brand and high loyalty towards revenue and profit. This is the reason why franchising business in India cant grow after a certain extend and to grow, we need a concrete structure and a hardcore planning.
Points to be considered before venturing into a franchise model :
- Expected Revenue (ROI) ( Sale projection should be done on both higher and lower side)
- Manpower planning & Cost
- Material handling
- Wastage parameter
- ERP’s/ software/theft
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