Franchising can be defined as Business Operations owned or operated or both by a third party under the licensing from the parent brand which entitles the licensee that will use the brand of the company, operational procedures and the products of the company
Franchise model is given by the company and it is well established brands to expand their business presence. Market share is in a fast paced manner by the brands.
Benefits of Franchising for Brand
- Rapid expansion of business
- Penetrating new markets by engaging partnership with local business men
- Reduced Capital and Operational expenditure
- Higher return on investment
- Lower risk of business exit
- Increase brand value and presence
Usually a company begins operations with Company Owned and Company Operated Model of business (COCO) but when the brand is well established, the company get into a franchise model to reduce operational cost, capital cost and to increase the return on investment through the brand value that the company has created for itself.
- Franchise Owned Franchisee Operated (FOFO)
This model is adopted by any companies for rapid expansion of brand by making its presence and to capture new markets with the help of person at different location. In this franchise model, company is trained the staffs, branches setup and furnished is done by the Company and given to the Franchise. It will also monitoring the operations and maintain standards of the company and operations is independently managed by the franchisee. The Franchisee pays a licensing fee as per the agreed terms to the Company. Surprise and scheduled SOP audits are done by the Company to ensure high standards are maintained. When Franchise fails repeatedly in audits, the Company either levies fines or pulls out from the contract eventually closing the franchisee business.
But when well operated, the local market knowledge of the franchisee coupled with the business expertise of the Company are put to the right use there by fetching good profits for both the Company and the Franchisee.
A good example for this model are Fast Food Chains where in the business is owned and operated by the franchise but regular audits are done by the Company to ensure standards are maintained as agreed.
- Franchise Owned Company Operated (FOCO)
This model is adopted by Brands when the company want to less expenditure and expand faster. In this model the franchise owns the business but the brand and the operations is handled by the company with regular reporting done to the franchisee on performance of the business. The franchisee can oversee the business and question the Company in case of poor performance.
- Company Owned Franchise Operated (COFO)
This franchise model is adopted by Brands when it want to decrease its operational cost. From this model the Brands gives the operations of the company to an interested franchise to control over the operations of thecompany with the former employ and SOP audits to ensure standards are adhered to. The business ownership still lies solely with the Company, the franchise can be changed when the Company identifies a more profitable and efficient franchisee. This model of franchise is adopted by the brand only in great position in the markets where brand has operated and got high ROI.
A good example for this model is Cafeterias within Hospitals and Corporates that are owned by the company but operated by a franchise for a lease period and then new bidding happens at the end of the lease term or when the company find out that the franchise is not maintaining the expected standards.
- Franchise Invested Company Operated (FICO)
This model of franchise is similar to FOCO but the difference is unlike FOCO the franchise has not involve it selves in business operations over all. Only an agreed fixed amount is paid to the Franchisee by the company for the investment done by franchisee in the business. In this model there can be multiple franchise investors for a single business unit and the Company runs the business operations with end to end control of the supply chain.
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