Franchising A Business | Knowledge Ridge

When we consider foodservice, there are several drivers for a successful international development, such as expansion strategy,  excellence in operations and monitored business plan.Franchisors and franchisees must dig into these points very carefully to avoid any bad partnership. This paper is about investigating how to reduce risks and maximize success for both parties. Franchising a Business is building a long-term partnership<ul style="text-align: justify;"><li>Co-development and cooperation (brand+operational system+assistance vs local market knowledge+resources)</li><li> Monitored plan vs opportunistic expansion</li><li> Limited capex for franchisor, but franchising has a cost. Supervision, training, travel costs are often underestimated </li></ul> Winning franchise system for franchisor and franchisees has 3 pillars <ul style="text-align: justify;"><li> Shared ambition and trust:  Clear understanding of the brand equity+clear success path and requirements+shared and confident business plan</li><li> Fair value sharing between parties (balanced mutual P&Ls)</li><li> Training and control:  Excellence in operations is # 1 brand equity protection and this mindset must be shared between franchisor and franchisees. When you missed the target, the game is over</li></ul> <h2 style="text-align: justify;">What does International Expansion mean for a franchisor?</h2> Defining your LT International Strategy<ul style="text-align: justify;"><li> Where to go and why?  </li></ul>Analyze potential markets through demographics, purchasing power, competition, local supply.<ul style="text-align: justify;"><li> Market prioritization based on sales potential and RTM (local regulations/supply/skilled staff)</li><li> Loop strategy vs scattering !</li></ul>Focus on a region to create optimizations rather than pin flags randomly (no synergies)<ul style="text-align: justify;"><li> Master Franchise/JV/multi regional franchisees? And why?</li><li> Rights and duties of franchisees : what freedom do you want to give to your franchisee?</li><li> Forecasted organization and resources (P&L)</li><li> Take time to find the right partner and to make a deal !</li></ul> Your Expansion Plans<ul style="text-align: justify;"><li> Brick & mortar locations or hybrid?</li></ul>(Brick & mortar+dark kitchens)<ul style="text-align: justify;"><li> What type of locations and requirements?</li></ul>(catchment area metrics, venue specs and visibility)<ul style="text-align: justify;"><li> Be realistic in your opening plan : take into account local administrative timeframes to build a sustainable and fair ramp up.</li></ul> Know your target markets to be successful!  <h2 style="text-align: justify;">Find the Right Partner !</h2>Finding the right partner requires various processes to be carried out by Franchisor and the Franchisee. Franchisors should look into franchisee story and capacity:<ul style="text-align: justify;"><li> KYC</li><li> Success tracks</li><li> Current organization</li><li> Resources</li><li> Current partners feedbacks</li><li> Governance</li><li> Finance vs operations : who has the money and who’s making the money?</li></ul> Once identified<ul style="text-align: justify;"><li> Potential shareholders (%) and governance</li><li> Operations organizations : HR, supply, operations, marketing, IT, finance, etc.</li></ul>Who’s already on duty and how many to hire ? what profile ?<ul style="text-align: justify;"><li> Potential locations pipeline : where ? how many ?what is the validation process ?</li></ul>Beware of “Brand collectors” : the kind of partners with many brands but only few locations by brands! <h2 style="text-align: justify;">Franchisee : Search infos on your franchisor !</h2> Question current franchisees about:<ul style="text-align: justify;"><li> Day-to-day relationships and assistance</li><li> Trouble shooting efficiency</li><li> Training and supervision (how much time? Frequency ?</li><li> Possible local adjustments (concepts/menu etc.)</li><li> International supplying partnerships</li><li> IT and tech</li></ul> Ask for data!<ul style="text-align: justify;"><li> Sales, ticket count and average ticket</li><li> Standardized P&L</li><li> Data on local operators (know your market : data vs gossips)</li></ul> <h2 style="text-align: justify;">Excellence in Operations</h2><h2 style="text-align: justify;">Franchisor</h2>No deviation on process!<ul style="text-align: justify;"><li> Staffing and training programs (necessary and sufficient)</li><li> Product tasting and validation</li><li> Unannounced visits  to get the real operational life vs a theater play</li><li> Set 3rd party audits in your locations and competition to be able to maintain your competitive edge.</li></ul> Marketing activities<ul style="text-align: justify;"><li> Clear guidelines and validation process (who/what/time frame)</li></ul> Operational rules and guidelines in Franchise agreement<ul style="text-align: justify;"><li> Clear operational KPIs (figured, ambitious but achievable)</li><li> Curing process and timeframe</li><li> Penalties</li><li> Termination clauses for critical unnegotiable points</li></ul> <h2 style="text-align: justify;">Franchisee</h2>Before opening <ul style="text-align: justify;"><li> Efficient operations manual in local language (local teams will use it!)</li><li> Pre-opening training</li><li> Franchisor’s opening team (facilitators/doers vs advisors)</li></ul> Marketing<ul style="text-align: justify;"><li> Franchisor MKG plan</li><li> Local activities</li></ul> Roll-out phase<ul style="text-align: justify;"><li> Clear contact list : who’s the right person I call when I have a problem/question?</li><li> Control plan and visit frequency (who/when/what)</li><li> Assistance in trouble shooting</li></ul> <h2 style="text-align: justify;">A shared and monitored Business Plan</h2>Franchisors should focus on development plan<ul style="text-align: justify;"><li> Annual opening plan by format and delivery</li><li> Identification of first locations and assessment of pipeline</li><li> Ban uncertainty</li><li> Beware of flagships : heavy Capex, often poor profitability</li></ul> Franchisee deep dive in BP and P&L<ul style="text-align: justify;"><li> Deep understanding of competition footprint and performance</li><li> Realistic geographic expansion strategy</li><li> Franchisor’s format portfolio</li><li> Pre-opening costs</li><li> Standardized P&L by format</li></ul> The Annual Business Review is the climax of the partnership. The outcome is a comprehensive analysis of the situation, accurate action plans and the certainty that both parties are doing their best to make it happen. For Franchisor<ul style="text-align: justify;"><li> Franchisee performance management</li><li> Rolling 3YP forecast (coming year+2)</li><li> Current and future key issues</li><li> Franchisee actions plan</li></ul> For Franchisee<ul style="text-align: justify;"><li> Results analysis</li><li> Gaps vs plan</li><li> Innovations from Franchisor</li><li> Franchisor Action plan</li><li> Other countries’ best practices and innovation</li></ul> <h2 style="text-align: justify;">Few pieces of experienced Advice</h2><ul style="text-align: justify;"><li> Imagine the worst to be ready!</li><li> Plow data from World bank, embassies, local franchise experts, Euromonitor surveys</li><li> Stick to the franchise agreement (shared and signed common law)</li><li> Organize permanent relationships on different organizational levels (peer-to-peer)</li><li> On time management of weak signals to avoid dead-end situations</li><li> Clear communication (no sugar coating and celebrate successes)</li><li> Don’t try to build wall between franchisees, they will break them</li><li> Share best practices and initiatives</li></ul> This article was contributed by our expert <a href="https://www.linkedin.com/in/fcharpy/">François Charpy</a> <h3 style="text-align: justify;">Frequently Asked Questions Answered by François Charpy</h3> <h2 style="text-align: justify;">1. What is a good example of a franchise?</h2>Regardless of the business you run, a good franchise system has 3 essential pillars :<ul style="text-align: justify;"><li style="list-style-type: none;"><ul><li>a clear commitment on strategy and business plan,</li><li>a fair shared profit between franchisor and franchisee,</li><li>the certitude that excellence in operations is the only sustainable path to success.</li></ul></li></ul> It’s all about ambition, trust, training, transparent communication, control, based on a win/win approach.The franchisee brings his local comprehensive knowledge and invests in the Franchisor’s brand, operating model, assistance. The franchisor inks with a fair partner with financial, operational and people resources to spread his brand. Any doubt or black hole on each side always leads to failure. Partnership mean transparency!Development plans need to be realistic based on local constraints (regulations/Go-to-market timeframe) and current environment (competition footprint/market maturity/white spaces) <h2 style="text-align: justify;">2. What is the importance of franchising to the restaurant industry?</h2>Franchising in the restaurant industry is a very long story started 50+ years ago. Franchising is the fastest and cost-efficient way for a franchisor to grow a network domestically or abroad. It’s mainly capex free but has a cost (international team, supervision, communication, etc.).Key global QSR players have >75 % of franchised network. Specifically in the foodservice business, key critical points are the consistency in supply and robustness in operations. Success will come along with a strongly structured operational model and go-to-market infrastructure.  <h2 style="text-align: justify;">3. What mode of franchising is most popular when expanding internationally?</h2>Many franchise systems coexist . Mac Donald’s for examples in different countries operates company-owned locations alongside local franchisees (e.g. Europe)ou master franchisees (e.g. India). Master franchise give you the right to sub-franchise within a delimited territory. In Russia, Yum! used to have several local master franchisees.But few operators created Joint Ventures with their local partners like Krispy Kreme in France, Five Guys in UK/France, Toridoll (Morugame Udon) for Europe.There isn’t a best franchising model because it depends on the Franchisor’ strategy, ROCE, market size.

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