Business Opportunities: Franchising

Today you will know what a franchise is.

You will understand how setting up a franchise can be seen as less risky as

other new ventures.

You will be able to identify how they are set up and how they operate.

What is a franchise? A franchise is when you pay to use an existing

businesses name, brand and marketing. In return you buying their name. You sell their products

and services. The franchisee is the person buying the name etc. This

could be you for your business idea. The franchisor is the business selling the use of their

name. i.e. McDonalds.

– So any of you could be a franchisee. You could pay McDonalds so that you can set up as McDonalds.

Many high-street stores in the UK are franchises. These include McDonalds, Dominos, Tie Rack,

Perfect Pizza, and The Body Shop.

Franchise Franchises are usually restricted to a specific

geographical area and for a limited period of time.

e.g. Subway, Pizza Express, McDonalds, Dominos Pizza

Limits the risk for the owner but also limits the profitability for the franchisee

The franchisor may help and provide advice but may also place strict restrictions on what the franchisee may do to maintain their brand image.

Franchising: The Benefits

The business is more likely to be a success as it is supported by a well known brand name. Therefore it is less risky.

The business will have a ready-made reputation due to the brand name. Therefore it is less risky.

The franchisee will be given support and guidance from the franchiser.

The franchiser will provide training for staff and the marketing of the business– This is vital as it can help to reduce costs

The franchiser will the supply stock and materials required.

Franchising: The Drawbacks

There can be high start up costs for the franchisee. The franchisee must pay the franchiser fees and

royalties to use the brand name. – These royalties must be paid even if the business makes a

lost. There is only one supplier (the franchiser) they can

therefore charge a high price for stock and supplies. The franchisee has limited control – therefore it would

not suit an open minded entrepreneur. – The franchisee is the boss of the business, however they do

not have the normal freedom to make decisions

Specsavers was started by Doug and Mary Perkins in Guernsey in 1984. They opened branches in Devon and Cornwall, each run

by a manager with their own Specsavers chain.

In 1988, the company decided to speed up its growth by getting individuals to open their own Specsavers franchise outlets.

Now the finance needed to open each branch (approximately £140,000) would come from the franchisee, not Doug or Mary. Also the founders would no longer have to manage each store

on a day-to-day basis.

Each franchisee has every incentive to run their store well, because all the outlets revenues are kept locally – apart from the royalty rate of 5% that must be paid to Specsavers’ head

office.

Doug and Mary also receive a start up fee from each franchisee, which is a sum of between £25,000 and £50,000 depending

on the location.

This approach has allowed Specsavers to develop into the third largest optician chain in the world, with more than 500

branches.

Should have gone to

Why Franchise? Malachy Miller

Read the Why Franchise? Case study about Malachy Miller.

Then complete questions 1 – 5 (30 marks – 30 minutes)

Once you have finished the case study log on to the O’Briens website and research

their franchise opportunities.