QUIZ #1 (Franchising)

McCormick Harvesting Machine Company

- The earliest example of franchising in the U.S. - 1850 commissioned "exclusive local agents" to sell and service its machinery.

Pattern or method of doing business

Afranchisee is granted the right to offer, sell, or distribute goods or services under a marketing format which is designed by the franchisor.

Business Opportunity Approach

An informal generic description about the franchisor-franchisee relationship, wherein an owner of a product or service grants right to an individual for local distribution and/or sales of the goods or services who, in return, provides a fee or royalty back to the owner.

Convenience Stores

Franchise agreements for convenience stores are typically written for ten-year terms and large majority require that the franchise be the owner-operator. Franchisors require payment of royalty and advertising fees. Sample firms in this category include 7-eleven Inc., Dairy Mart Convenience Store, Express Mart, Mini Stop.

Automotive Products and Services

Franchise firms specializing in muffler replacements, lube jobs, oil changes and transmission repair have been able to provide good and efficient services while charging less than independent dealers.

Termination of Agreement

Franchising agreement contains provisions concerning the franchisee's transfer rights, termination and renewal of the agreement. Any one or all three of these provisions could be invoked by the franchisor if the franchisee fails to heed all the provisions of the franchising agreement.

Expansion

Franchising is a good way to obtain expansion capital. Because your franchisees pay to buy outlets in your chain, you can grow the number of locations without tapping much of your own capital or needing to request financing from banks or investors.

Motivation

Franchisors are more motivated to make their franchise system grow as they have experienced business expansion. They aim for more innovation and business operation improvement and consistency.

Job franchise

Home-based or low investment franchise that is taken by a person who wants to start and run a small franchised business alone.

Recreation, Entertainment and Travel

Included in this groups are travel agencies, miniature golf courses, movie theaters and dance studios.

Business Format Franchising

Involves a specific FORMAT or approach required by the franchisor of the franchisee to following when providing the products and/or services to the customer.

Business format franchise

Involves a specific FORMAT or approach required by the franchisor of the franchisee to following when providing the products and/or services to the customer.

Franchising

Is a business opportunity by which the owner (producer or distributor) of a service or a trademarked product grants exclusive rights to an individual for local distribution and/or sale of the service or product, and in return receives a payment or royalty and conformance to quality standards.

Jollibee Foods Corp (JFC)

Is a fast food restaurant chain that specializes in Filipino fast-food dishes. They offer chickenjoy, hamburgers, and pizza. There are over 1300 JFC locations throughout the Philippines.

Conversion Franchising

Is a franchise system in which the already existing independent businesses are converted into franchises. Hence it allows an independent business to use a national franchise systems name, trademark and operating system.

Franchising

Is a method of doing business by which a franchisee is granted the right to engage in offering, selling, or distributing goods or services under a marketing format which is designed by the franchisor

Conversion franchise

Is a modification of standard franchise relationships. Examples of industries that extensively use conversion franchising are real-estate brokers, florists, professional services companies, home-services, like plumbing, electricians, air conditioning, and so on.

Shakey's

Is a popular pizza chain that offers franchising opportunities. The Shakey's Pizza franchise can be a "great business" opportunity for someone who is looking for an easy way to start their own profitable business. The company offers an excellent product and a proven track record, which makes it a good option for someone looking to get into the pizza industry. Shakey's Pizza R&B's milk tea Peri-Peri Charcoal Chicken.

Franchise

Is a type of license that grants a franchisee access to a franchisor's proprietary business knowledge, processes, and trademarks, thus allowing the franchisee to sell a product or service under the franchisor's business name

Pizza Hut

Is another international pizza chain with over 1,200 locations throughout the Philippines. Their pizza options include thin crust pizzas, pepperoni pizzas, and large specialty pizzas such as The Margarita Pizza which has toppings including guacamole and sour cream!

KFC

Is another international restaurant chain with a strong presence in the Philippines. They offer chicken meals including buckets of chicken, fries, coleslaw and a drink. There are more than 170 KFC restaurants across the country.

Joint venture franchise

Is shorthand for the grant of a franchise to a joint venture party.

Franchisee

Is the individual or business granted the right by the franchisor to operate in accordance with the chosen method to produce or sell the product or service.

Franchisor

Is the individual or business granting the business rights to a franchisee.

Conversion franchising

Is the process of turning independent businesses into franchisees under the umbrella of the franchisor's brand name.

Established Product or Service

Often, consumers are already aware of the name and reputation of the product or service the franchise system offers, a significant advantage to the prospective franchisee.

Technical and Managerial Assistance

One can become a franchisee without prior experience in a certain line of business because the franchisor will provide the instruction necessary to operate a franchised unit.

Performance of Other Franchisees

Poor performance by some in the franchise network can affect the sales of others.

Quality Control Standards

Properly administered and controlled, such standards help the franchise to achieve constructive, positive results by ensuring product or service uniformity throughout the franchise system. By setting and maintaining high standards, a franchisor does the franchisee a genuine service.

Hotels, Motels and Campgrounds

Quality Inns, Holiday Inns and Marriott Hotels.

Real Estate Services

RE/MAX Phil.

International Franchising

Refers to a domestic business's expansion into foreign countries and markets. International franchising is a complex process that requires thorough considerations of many factors, such as feasibility, adaptability, and benefits versus risks.

Laundry and Dry Cleaning

Sample firms include Laundry world, Nothing But Laundry, Spin-Off etc.

Business Aids and Services

This includes accounting and financial planning firms, businesses and services, consulting and brokerages, education and training, gifts and fund-raising specialists.

McDonald's

This is the biggest and most well-known franchise in the Philippines. They offer traditional American cuisine such as burgers, fries, McMuffins, and shakes. There are over 650 McDonalds locations throughout the country.

A Gasoline / Petrol Stations

With the rising oil and gas prices worldwide, you will surely benefit from the high inflation rate. Filipino entrepreneurs can try Shell, Petron, Phoenix, Seaoil, Eastern Petroleum

Franchise opportunity

3 components, a trademark or logo, the use of product or service following a marketing plan, and a payment or royalty fee.

Convenient Stores

7-Eleven, Ministop, Mini Mart, Family Mart, and other convenience stores are ubiquitous in the Philippines offering soft drinks, snacks, ice cream cakes and even convenience stores such as cigarettes and lottery tickets!

Franchising

A business opportunity by which the owner (producer or distributor) of a service or a trademarked product grants exclusive rights to an individual for the local distribution and/or sale of the service or product, and in return receives a payment or royalty and conformance to quality standards.

Overdependence

A franchisee can become too dependent on the advice of the franchisor to address operations, crises, changing market conditions, pricing strategy, or promotions and so may fail to apply common sense and knowledge of local customers and market conditions.

Less Operating Capital

A franchisee can start up with considerably less operating capital because the business may not require as much inventory as a comparable non franchised business. The knowledge and the experience of the franchisor available to the franchisee concerning how much stock is needed and when to reorder can dramatically reduce the potential for aging of stock, waste or spoilages of perishables and unprofitable storage of low demand items. A new franchisee may be able to receive some financial assistance in the form of credit, as cash or as inventory consigned from the franchisor or from the franchisor's financial resources.

Potential problem of Communication

A franchisee may develop a sense of independence and no longer feel a need to rely on the franchisor for the successful operation of the business. Misunderstandings, personality differences and political maneuverings can blunt the effectiveness of the franchising system.

Product (or distribution) franchise/ Product and trade name franchising

A franchising relationship in which the dealer acquires the trade name, trademark, and/or product from the franchisor/supplier

Product and trade name franchising

A franchising relationship in which the dealer acquires the trade name, trademark, and/or product from the franchisor/supplier.

Licensing relationship

A franchisor of a product, service, or business method grants distribution rights to affiliated dealers (the franchisees); these rights often include exclusive access to a defined geographic area.

Continuing relationship

A franchisor provides a licensed privilege to do business and provides management and technical assistance and training in return for a consideration from the franchisee.

PCSO Lotto

A lottery franchise is a business that offers the opportunity to purchase a license to operate a lottery. The franchisee is responsible for all aspects of the lottery operation, from selling tickets to running the games. There are a number of different types of lotto games in the Philippines, namely 6/42, 6/45, 6/49, 6/55 and 6/58 lotto games.

Franchisee

A person who purchases a successful franchise from a business owner. While the franchisee will run their branch or branches somewhat independently, they must still follow the guidelines and standards set forth by the franchise owner.

Franchisor

A person who started a business that became so successful that they decided to allow others to replicate it by opening up their own locations (franchises) for a fee. The franchisor outlines a business model all franchisees must follow.

Opportunities for Growth

A potential advantage concerns growth opportunities for operating a territorial franchise. A territorial franchise guarantees no competition from the same franchisor within a specified geographic boundary. It may later be in a position to sub franchise or license other persons to operate stores belonging to the territorial franchise. In an operating franchise, runs the business usually within an exclusive territory and receives an owner-operator assistance from the franchisor or from both a territorial franchisee and parent company.

Bayad Center

Bayad Center welcomes Pinoy entrepreneurs in the finance niche. The minimum cash bond for the Bayad Center would be roughly 600,000 pesos, and the franchise fee is 350,000 pesos for 5 years plus 12% value added tax, equipment estimated at around 120,000 pesos, and site restoration estimated at around 130,000 pesos. The bare minimum would be 15 square meters. They promise a two-year ROI.

William E. Metzger of Detroit (1898)

Became the first franchisee of the General Motors Corporation (makers of Buick, Cadillac, Chevrolet, GMC, Holden, and Wuling).

Potential problem of Recruitment

Concerns the difficulty of finding promising franchisees. Most prospective franchisee candidates lack the experience, motivation or the proper capital backing needed to become successful franchisees. Also the franchisees may not fully realize the amount of time, work and responsibility required to own and operate an in going franchised business.

Loss of Freedom

Concerns the franchisor's loss of freedom as new franchisee become part of the franchise system. Independent business persons can easily make decisions and change policies within their organizations; but once a franchise system is developed, the franchisor or parent company must get permission (often negotiated individually) from franchisee/s to introduce new products, to add or eliminate services, or to change operating policies.

Bulk Purchasing

Economy of scale in purchasing power can be achieved more rapidly by a company choosing franchising compared with a company that expands through company-owned units.

Maintenance and Cleaning Services

Examples of franchised opportunities in this category are Carpet and Upholstery Cleaning, Building Care, and Restoration Services.

Company-Owned versus Franchised Units

Expanding operations by establishing company-owned units has several clear advantages over expanding by franchising. A parent company has more control over units the company owns; can institute changes in policy and procedures more readily; can change company mission and market strategy more quickly and perhaps more effectively; and can test out new products or processes with less time and paperwork. (Expansion by franchising - less owner control)

Other advantages

The Franchisor is free to use part of the company's capital for purposes other than expansion, because the franchisee has also invested capital in the new operating unit. In addition, cooperative advertising (with franchisor and franchisee sharing costs of advertising) tends to achieve much more than individual advertising.

Pharmacy / Drugstore

The Generics Pharmacy, Generika Drugstore, Southeast Drugstore, Value Aid Generic Pharmacy, Citi Drug 2 and 1.

Format

The approach to be used by a franchisee in providing the franchisor's product or service line to the customer.

Singer Sewing Machine Company

The first example of a consumer goods firm to use a franchise-oriented system of distribution

Service Costs

The franchisee could find the franchise fees or royalties excessive, especially after being in business for several months and realizing the effect that the royalties and fees are having on the franchisee's anticipated return on investment.

Restrictions of Freedom of Ownership

The franchising contract may contain restrictions or requirements that an independent business person would not have to satisfy. The franchisee may be required to offer product or service that he or she would not otherwise choose to offer. A franchisee may find that some of the franchisor's advertising or promotions are impractical given local market conditions.

Failed Expectations

The franchisor's business expertise, experience, selling methods, trademark, and advertising typify what a franchisee seeks to acquire. The franchisee may not be supported and assisted in the long run and experienced dissatisfaction in the agreement/franchisor-franchisee relationship.

Franchisee

The individual or business granted the right by the franchisor to operate in accordance with the chosen method to produce or sell the product or service.

Franchisor

The individual or business granting the business rights to a franchisee.

Business Opportunity

The owner (producer or distributor) of a service or a trademarked product grants exclusive rights to an individual for local distribution and/or sale of the service or product, and in return receives a payment or royalty and conformance to quality standards.

Restaurants

The restaurant industry is one of the most dynamic segments of franchising. The majority of restaurants can be classified into one of three categories:

Operation of Nonunion Business

There is greater likelihood that company-owned units would be more attractive to union organizers than franchised units, largely because a single franchised operating unit is less likely to be unionized and to develop labor relations appropriate to the local supply-and-demand conditions of the labor pool.

Investment franchise

These are large scale projects which require a large capital investment, such as hotels and the larger restaurants.

Employment and Personnel Services

This category has the highest ratio of franchisors that require the franchisee be an owner-operator of the business.

Printing, Copying, and Sign Products and Services

This category of franchisors has the highest ratio of franchisors who make earning claims. Nearly all franchisors require a royalty fee and over 80% require an advertising fee.