UNIT 1 INTRODUCTION

INTRODUCTION TO RETAIL FRANCHISING

Retail franchise businesses offer entrepreneurs the opportunity to own a business
serving consumers and operating within a proven business model. The support
provided by the central franchisor makes a franchise a good choice for many who
want to own a business that deals directly with the public.
Features
A retail franchise is any franchise business that serves the general public. Stores,
repair shops, restaurants, hotels and beauty shops are all examples of retail
industries in which franchises operate. While the franchise structure restricts what
an owner can do, it provides more marketing, operational support and brand
recognition than owners of stand-alone small businesses have.
Types
Some retail franchises, called product distribution franchises, sell standardized
products but have varying business practices and formats. An example of product
distribution is the standard auto dealership. More common is the business-format
retail franchise, where each franchise unit follows a comprehensive and standard
set of procedures and practices. The aim is a uniform consumer experience and
improved operational efficiency.

Retail franchising environment in India

Opportunities are knocking retail industry doors as the industry size is getting
bigger in India. The retail sector of India alone contributes 22 per cent of country's
gross domestic product (GDP) and contributes about 8 per cent to the total
employment. The industry includes varied segments like clothing, food, beverages
and convenience stores etc. So, Franchise Zing has maintained a finest portfolio of
brands offering lucrative franchise deal to develop business opportunities in India.

Retail franchising overview

The following U.S. listing tabulates[4] the early 2010 ranking of major franchises
along with the number of sub-franchisees (or partners) from data available for
2004.[5] As can be seen from the names of the franchises, the United States is a
leader in franchising, a position it has held since the 1930s when it used the
approach for fast-food restaurants, food inns and, slightly later, motels at the time
of the Great Depression. As of 2005, there were 909,253 established franchised
businesses, generating $880.9 billion of output and accounting for 8.1 percent of
all private, non-farm jobs. This amounts to 11 million jobs, and 4.4 percent of all
private sector output.[6]

1. Subway (sandwiches and salads) | startup costs $84,300 $258,300 (22,000

partners worldwide in 2004).
2. McDonald's | startup costs in 2010, $995,900 $1,842,700 (37,300 partners in
2010)
3. 7-Eleven Inc. (convenience stores) | startup costs in 2010 $40,500- $775,300,
(28,200 partners in 2004)
4. Hampton Inns & Suites (midprice hotels) | startup costs in 2010 $3,716,000
$15,148,800
5. Great Clips (hair salons) | startup costs in 2010 $109,000 - $203,000
6. H&R Block (tax preparation and now e-filing) | startup costs $26,427 - $84,094
(11,200 partners in 2004)
7. Dunkin' Donuts | startup costs in 2010 $537,750 - $1,765,300
8. Jani-King (commercial cleaning) | startup costs $11,400 - $35,050, (11,000
partners worldwide in 2004)

9. Servpro (insurance and disaster restoration and cleaning) | startup costs in 2010
$102,250 - $161,150
10. MiniMarkets (convenience store and gas station) | startup costs in 2010
$1,835,823 - $7,615,065
Mid-sized franchises like restaurants, gasoline stations and trucking stations
involve substantial investment and require all the attention of a
businessperson.There are also large franchises like hotels, spas and hospitals,
which are discussed further under technological alliances.Three important
payments are made to a franchisor: (a) a royalty for the trademark, (b)
reimbursement for the training and advisory services given to the franchisee, and
(c) a percentage of the individual business unit's sales. These three fees may be
combined in a single 'management' fee. A fee for "disclosure" is separate and is
always a "front-end fee".
A franchise usually lasts for a fixed time period (broken down into shorter periods,
which each require renewal), and serves a specific territory or geographical area
surrounding its location. One franchisee may manage several such locations.
Agreements typically last from five to thirty years, with premature cancellations or
terminations of most contracts bearing serious consequences for franchisees. A
franchise is merely a temporary business investment involving renting or leasing
an opportunity, not the purchase of a business for the purpose of ownership. It is
classified as a wasting asset due to the finite term of the license.Franchise fees are
on average 6.7% with an additional average marketing fee of 2% A franchise can
be exclusive, non-exclusive or 'sole and exclusive'.Although franchisor revenues
and profit may be listed in a franchise disclosure document (FDD), no laws require
an estimate of franchisee profitability, which depends on how intensively the
franchisee 'works' the franchise. Therefore, franchisor fees are typically based on
'gross revenue from sales' and not on profits realized. See remuneration.
Various tangibles and intangibles such as national or international advertising,
training and other support services are commonly made available by the
franchisor.Franchise brokers help franchisors find appropriate franchisees. There
are also main 'master franchisors' who obtain the rights to sub-franchise in a
territory.According to the International Franchise Association approximately 4% of
all businesses in the United States are franchisee-worked.It should be
recognized[citation needed] that franchising is one of the only means available to

access venture investment capital without the need to give up control of the
operation of the chain and build a distribution system for servicing it. After the
brand and formula are carefully designed and properly executed, franchisors are
able to sell franchises and expand rapidly across countries and continents using the
capital and resources of their franchisees while reducing their own risk.It's
important to know that there is risk for the people that are buying the franchises,
too. There are a lot of myths surrounding the success and failure rates of franchise
businesses. One of the more popular myths states that franchise businesses have
lower risk than independent business startups.[9] Another one suggests that it's
almost impossible to fail. Both are untrue,[10] and it's important for today's
franchise-seekers to be aware of that fact. Franchisor rules imposed by the
franchising authority are usually very strict in the US and most other countries
need to study them carefully to protect small or start-up franchisee in their own
countries.[citation needed] Besides the trademark, there are proprietary service
marks which may be copyrighted, and corresponding regulations.

Recent trends franchising in India

Grown from a questionable format to an admissible mode of business expansion in

India
Pioneering companies proved that franchising can work in any market/ country
Brought a graphic change in over-all working culture in the business
Technology and internet are helping at both ends:

o
o

To create the awareness about new products & services, and

Enabled high consumer servicing allowing fast proliferation of worthy concepts &
products
Revolutionary year - 2010,

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o
o
o
o
o
o

Booming entrepreneurship: 1800 Home Grown Franchisors & 2,00,000

Franchisees
85% success rate in franchising Vs. 90% failure in self start ups
Franchise industry estimation has towered up to over US$ 7 billion
Highest retail outlet density in the world to up to approx. 12 million
Remains the best entry & expansion strategy
SMEs are the key economy drivers
Employs over 97,00,000 employees directly or indirectly