7 benefits of expanding your business through franchising
- With the onset of the pandemic more and more people are flocking franchise websites to pick up franchises from reputed global brands instead of starting up their own stores.
For anyone considering expansion of business, building a franchise network vs expanding your own branches are two contrasting approaches available. Choosing the right approach for themselves is where most businesses get confused. It is crucial for every business who wants to expand to weigh the advantages and disadvantages of both the options.
Franchising is a form of marketing and distribution with a strong relationship between the franchisor and the franchisee. The franchisor is the owner of the business and brand who grants the right, a licensed privilege to the franchisee (an individual or a group of people) to sell the business’ products and services.
The primary advantage for people investing in a franchise is that the franchisor assists in organising, training, merchandising, marketing, and managing in return for a monetary consideration. However, there are several benefits to the franchisor as well as the brand gets to easily expand its business through franchising. It is often said that franchising is the shortcut to business success because of the myriad of opportunities that it brings.
This article talks about various advantages of choosing the franchise route compared to own stores:
Strategic Identity: A brand needs to hold an identity that can be easily identified by the audience. In franchising, this identity is already given to a franchisee and often they are highly recognisable at a global level.
As a franchise investor, the franchisee will own and run one of your brand outlets in a different location. This provides a strategic identity to the franchised outlet and is an effective method for the parent brand to quickly expand in the market. Corporate brands such as McDonald’s and Domino’s have taken full advantage of this and have emerged successful in the franchising market.
With a good brand identity comes a loyal consumer base seeking the same experience and products in different locations. This benefits the franchisors whose franchise is getting popular.
Capital: For an existing business that needs expansion, capital is the biggest problem. With franchising, the franchisor gets capital acquisition from the franchise investor for opening and operating a franchise unit.
It allows the franchisor to grow using the resources of others and unfettered by debt. When the franchisee signs the lease and commits to various contracts, it allows franchising to expand virtually with no contingent liability which reduces the risk to the franchisor greatly.
Ease of Supervision and Management: It takes several months for a business to look for and train a new manager or any other staff member. And after putting so many efforts in training them, they often leave or get hired by competitors. There is also a lack of genuine commitment to their jobs which makes supervising them from a distance a great challenge.
In franchising, the owner gets substituted for the manager. Franchisees will assume majority of the responsibilities that are otherwise shouldered by the business, thus allowing the franchisor to focus on the big picture.
Franchisees are also likely to have more motivation than a regular manager, since they have a vested interest in the success of their business and act as entrepreneurs running separate profit entities.
Constant Growth: It involves a lot of money and time to set up a single unit and
businesses have a fear of getting lost in the crowd of competitors. Often, these fears are based on reality.
Franchising ensures that the franchisor can capture a market leadership position before the competitors can respond. McDonald’s’s, OYO, Levi’s, Ferns N Petals, Lenskart, Domino’s, Miniso and many more top brands have established market leadership through franchising, which would have otherwise been impossible through independent expansion.
Profitability: Since the cost involved in financing a franchise outlet and the overall day to day responsibility is borne by the franchisee, the franchisor’s company is usually much leaner. The franchisor also receives franchise fees and royalties on all products sold by the franchisee which as a result makes the franchisor organization more profitable.
Purchasing Power: As the franchise grows, the store marketing strategies, multiple locations, and huge customer base leads to an increase in the turnover, profits, and ultimately the purchasing power. This allows the franchisor to develop better deals with suppliers and enable other business purchases such as vehicles and equipment.
Minimized Risk: Franchising helps mitigate many risks that are involved in expanding a business with company-owned outlets. A franchisor not only requires less capital to expand but also the risk is limited to the capital a franchisor invests in developing the franchise company. This capital amount is far less than opening one additional company-owned location. Since all the responsibility for the investment in the franchise operation are borne by the franchisee, the start-up risk is substantially reduced for the franchisors.
Since 2013, Indian Franchising industry has seen a four-fold growth. More than 200,000 franchise outlets operate in India in various locations. The industry is thriving at a rate of 30-35% year-on-year and is estimated to reach USD 100 billion by 2024. In fact, India is already the second-largest franchise market in the world following the US. It also accounts for roughly 2% of the national gross domestic product (GDP).
With the onset of the pandemic more and more people are flocking franchise websites to pick up franchises from reputed global brands instead of starting up their own stores. Platforms like Franchise India and SMERGERS provide an easy and convenient list of Franchise brands for investors to filter, shortlist and connect with each other. With more than 1000+ global franchise brands across industries and from over 150 countries, such platforms cater to all kinds of businesses right from small local brands to large multinational corporates looking to expand their business through the franchising route.