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Preparation for Franchising

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					Mkt 3009
Franchising Issues

Module 5: Topic12
Expansion and Development
through Franchising
                      MKT3009 Module 5: 1
Introduction
 The final topic looks at ways of developing
 and expanding franchise networks.
 Techniques such as multiple units, multiple
 concepts, multiple systems, co-branding
 and master franchising are presented as
 methods of assisting network growth. In
 addition, opportunities in new markets in
 New Zealand and overseas are discussed.
                                 MKT3009 Module 5: 2
Introduction
          1.                 2.
  Multiple Units and    Co-Branding
       Systems




          3.           4. National and
  Expanding Markets     International
                         Expansion

                             MKT3009 Module 5: 3
Expansion
  The original model of franchising was
  the entrepreneur-franchisor enlisting
  "mom and pop" franchisees who each
  held a single franchise unit.
  However, expansion under this method
  can be slow and ineffective as large
  numbers of franchisees need to be
  recruited, selected and trained.

                              MKT3009 Module 5: 4
Multiple Units - continued
   A more efficient method of expansion is
   to offer suitable franchisees multiple
   units in the franchise network.
   Multiple unit franchising can be used to
   reward good operators by allowing
   them the opportunity to increase their
   investment in the franchise and thereby
   offer a greater management challenge.
                                 MKT3009 Module 5: 5
Multiple Units - continued
   In addition, this practice enables the
   franchisor to limit the network to a
   desired number of individual franchisees,
   thus making communication easier and
   more effective.
   The problem of sourcing enough good
   franchisees is also overcome by allowing
   multiple unit ownership.
                                 MKT3009 Module 5: 6
McDonald’s growth in
Christchurch
 Traill family now have eight restaurants
 established (6 ½ million customers/ year)
 20 year franchise agreements
 Operate within good systems
 Adhere to systems and standards


                                MKT3009 Module 5: 7
Multiple Units in NZ
  New Zealand and Australia seem to be
  lagging behind the United States with
  regard to multiple unit franchising.
  In the United States, the majority of
  franchisees hold multiple units in their
  networks.


                                 MKT3009 Module 5: 8
Multiple Units in NZ - continued
   In contrast, only 7 percent of Australian
   franchisees are multiple unit holders
   while no clear figures are available in
   New Zealand.
   We can expect to see a greater NZ
   adoption of this philosophy of
   franchisee involvement in the future.

                                  MKT3009 Module 5: 9
Multiple Systems
  Another method of growing the size of
  the franchisor's network is to offer
  multiple concepts under the one
  'umbrella'.
  The franchisor often starts with a single
  franchise concept but then expands the
  offering to include similar, but not
  competing, franchise concepts.
                                MKT3009 Module 5: 10
MKT3009 Module 5: 11
Multiple Systems - continued
 In New Zealand, it is difficult for most
 franchises to grow to the large size that is
 common in the United States (or even
 Australia).
 Hence, multiple concept franchising
 enables franchisors to achieve a larger size
 by offering similar franchises under a
 single brand name.
                                 MKT3009 Module 5: 12
Multiple Systems - continued
  The franchisor's resources can be spread
  more efficiently over the range of
  concepts, thus economising on
  administrative and franchise support costs.
  Franchisors may also expand their activities
  by offering multiple systems under a single
  brand name.

                                 MKT3009 Module 5: 13
Multiple Systems - continued
   This is not yet very common in New
   Zealand or Australia, but we can expect
   to see more happening in future.
   The idea is similar to the use of multiple
   concepts except that under multiple
   systems franchising the franchisor
   offers completely different franchises.
           Reading 5.4: Green Acres (p 59)
                                  MKT3009 Module 5: 14
Co-branding
  Relatively new to New Zealand but has been
  adopted in US since the 1980s.
  Co-branding is 'the juxtaposition of two or
  more different brands each providing
  different goods or services and each of
  which has a different owner.
  It is also known as dual branding (if two
  concepts are involved), multi-branding and
  combination franchising.
 e.g Burger King and Shell, Food Courts in Malls.
                                     MKT3009 Module 5: 15
Co-branding: Disadvantages
  Different franchisors working together
  (problems with different philosophies).
  Location of the co-branded unit (often
  it's in the middle of another outlet).
  Compromising system uniformity.
  Franchisees need training in two or
  more systems.

                                MKT3009 Module 5: 16
Expanding Markets
  New Zealand's franchising sector has been
  growing steadily over the past two decades,
  but in order for this rate of development to
  continue new markets need to be penetrated.
  In this section, trends in franchising will be
  identified as well as potential areas for
  expansion.
    These include women in franchising, younger and
    older franchisees, conversion franchising, mobile
    and home-based franchising, the impact of the
    Internet on franchising, and white collar
    franchising.
                                        MKT3009 Module 5: 17
Women in franchising
  A problem faced by many franchisors is the
  difficulty of attracting suitable franchisees. The
  enlistment of multi-unit franchisees, as
  discussed in section 1 of this topic, may help
  to alleviate the franchisee recruitment
  problem.
  However, if you study the following data on
  Australian franchisees you will soon notice that
  franchising is dominated by men in the young
  to middle aged bracket.
                                       MKT3009 Module 5: 18
Women in franchising - continued
         Other   Female             Male franchisees account
      ownership   Sole              for 25%, females only 9%
     arrangement owners
                   9%
                                    Although 56% of
         10%                        franchised units are
                                    owned by couples or
                                    partners
    Male                            (anecdotal evidence
    Sole
   owners
                                    indicates that women
    25%
                     Ownership      are sometimes included
                    with spouse     in the partnership for
                   or partner 56%   taxation benefits and
                                    often take more of a
                                    behind-the-scenes
                                    interest in the franchise.)
                                            MKT3009 Module 5: 19
Women in franchising - continued
   Hence, there is an opportunity here for
   franchisors to actively recruit more women as
   franchisees.
   Traditionally, women face barriers to entry in
   small business due to family responsibilities,
   lack of business experience and lack of access
   to finance.
   These are challenges that franchisors may
   need to overcome if they want to recruit
   suitable franchisees.
                                     MKT3009 Module 5: 20
Younger and Older Franchisees
 Majority of franchisees are aged from 30 to
 50 years.
   Because many franchisors seek franchisees
   with some type of business or management
   experience, younger people are not likely to
   qualify.
   In addition, people often seek career changes
   in their 30s and 40s and franchising offers an
   opportunity to become business owners. It is
   also this age group that will have the
   necessary capital to enter a franchise.
                                    MKT3009 Module 5: 21
Younger and Older Franchisees
- continued
                                      61 years + 0ver 1%
                     21-30
                     years
     51 – 60 years    8%
          12%

                             31-40 years            Franchisors
                                38%
                                                    might need to
                                                    reconsider
           41-50
         years 41%
                                                    younger and
                                                    older people.

                                                           MKT3009 Module 5: 22
Conversion Franchising
  Conversions occur when an existing
  independently owned business joins a
  franchise network.
  It is a common method of rapid expansion in
  the marketplace by a franchisor.
  Examples may be found in the pizza home
  delivery industry, travel agencies and real
  estate businesses.
e.g. AA Travel joining the House of Travel Franchise.
     Harcourts conversion of Collins Real Estate
                                        MKT3009 Module 5: 23
Conversion Franchising - continued
   The benefit to the franchisor is the
   rapid acquisition of a network of
   franchisees, many of whom are already
   operating successfully.
   Problems include the cost of the
   conversion and retraining of a
   franchisee who is accustomed to
   operating independently.
                               MKT3009 Module 5: 24
Conversion Franchising - continued
   The new franchisee benefits by
   becoming part of a large network which
   has an established brand name and
   which will improve sales turnover.
   The downside may be the switch from
   independence to an interdependent
   relationship within the franchise
   network, and of course the need to pay
   franchise fees.
                             e.g. Popeyes
                               MKT3009 Module 5: 25
Modile and Home-based
Franchising
  Franchisees who operate from mobile
  units or home offices are growing in
  numbers.
  Around 40 percent of franchisees
  operate in this manner and 60 percent
  operate from specific sites such as a
  retail outlet or business office.
                              MKT3009 Module 5: 26
Modile and Home-based
Franchising - continued
   Mobile and home-based franchises are
   prominent in both the property and
   business services and construction and
   trade services industries.
   The start-up capital requirements for
   mobile and home-based franchises are
   lower than those requiring specific sites.

                                  MKT3009 Module 5: 27
Modile and Home-based
Franchising - continued
   Hence, they are most suited to first-time
   franchisees and those people wishing to
   'buy themselves a job' instead of being
   employees in the labour market.

 (Average expense of mobile or home based can
   be less than quarter of the total start-up costs
   [$35 000] of a fixed site [$150 000] startup)
                                      MKT3009 Module 5: 28
Internet and Franchising
 Surprisingly, the majority of New Zealand
 franchisors have not yet made full use of
 the Internet to promote their products.
  Most franchisor web sites appear to be
 aimed at attracting potential franchisees.
  However, more and more franchisors
 have incorporated e-commerce functions
 into their web sites.
                               MKT3009 Module 5: 29
MKT3009 Module 5: 30
Search Properties
Seeking To     Buy      Rent

  Property
     Type _______________

   Region    _______________

    Zone     _______________

Bedrooms     _______________

Price From   ______ to ______

Search        Map Search
                                MKT3009 Module 5: 31
Loan Calculator
This calculator will tell you what your fortnightly and monthly repayments are likely to be. Simply
complete the various sections and click ‘calculate’ for an automatic calculation.



       MORTGAGE INFORMATION
  Purchase
  Price:
  Deposit:                                                                          REPAYMENTS AMOUNTS:
  Loan                                                                      Fortnightly:
  Amount
  Required:                                                                 Monthly:
  Term (in
  Years):
  Rate:

                             Calculate               Reset
                                                                                                      MKT3009 Module 5: 32
White Collar Franchising
 White collar franchising refers to
 franchising in professional industries such
 as accounting, banking, education and
 human resources.
 (These industries are historically serviced by
 'white collar' employees who work in offices,
 whereas 'blue collar' employees are involved in
 manual work)

                                    MKT3009 Module 5: 33
White Collar Franchising
- continued

White collar franchises are growing in
number as more and more industries
become involved in franchising as a means
of providing professional services.
White collar franchises enable professional
people who were previously employed to
operate their own businesses as
consultants within a large network.
                               MKT3009 Module 5: 34
National Expansion
 Most franchisors locate their first franchised
 units close to head office and expand
 outwards due to the monitoring efficiencies
 obtained.
 Eventually however it will be necessary to
 spread to distant locations. The problem
 here is being able to keep a watchful eye
 on all operations.

                                  MKT3009 Module 5: 35
National Expansion - continued
  One solution to the monitoring problem is
  to employ head office staff to travel
  around the country conducting field visits
  and offering support to franchisees.
  (but does this provide enough regular support to
  franchisees?)
  An alternative solution is to appoint
  master franchisees to specific
  geographical territories.
                                    MKT3009 Module 5: 36
Master Franchisees
 Master franchisees are sometimes referred to as
 sub-franchisors.
 These people enter an agreement to act as the
 franchisor would in recruiting, selecting, training,
 monitoring and supporting franchisees within a
 specific location - often a whole province or state
 within a country.
 In return the master franchisee generally retains
 a proportion of the ongoing franchise fees.
                                       MKT3009 Module 5: 37
International Expansion
  Due to New Zealand’s small population many
  franchisors eventually decide to export their
  systems overseas.
  The most common destination is Australia
  because of its proximity and close economic
  and cultural ties to New Zealand.
  Other popular destinations are South East
  Asia, United Kingdom, South Africa, Canada
  and the United States.
                                    MKT3009 Module 5: 38
International Expansion
- continued
   Care must be taken to customise the
   franchise to suit the new country.
   Likewise, overseas franchisors importing
   their systems to New Zealand must tailor
   them to obtain a good cultural fit.
   (For example, Aussie Pooch Mobile is
   known as Kiwi Pooch Mobile in New
   Zealand.)_

                                MKT3009 Module 5: 39
International Expansion
- continued
    Various strategies may be used to enter the
    overseas market.
    As with national expansion, master
    franchising arrangements remain popular.
     However, other alternatives include joint
    ventures with an overseas partner, licensing
    arrangements, direct investment in company
    owned stores overseas, or by exporting the
    manufactured product overseas.
                                     MKT3009 Module 5: 40
Challenges Facing Franchising
in the New Millennium
  The last National Bank Survey of
  Franchising in New Zealand (2000)
  asked respondents to nominate three
  challenges facing franchising in the new
  millennium.
  The most frequently expressed
  concerns are as follows:

                                MKT3009 Module 5: 41
1. Sub-standard                       Franchise Challenges
   Operators
2. Suitable franchisees                35

3. Government                          30
   legislation                         25

4. Acceptance by                       20
   public/education                    15

5. Competition/Market                  10
   size/Population                       5
6. Technology                            0
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                                                                MKT3009 Module 5: 42
 The End

Thank you
           MKT3009 Module 5: 43

				
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