Lesson 1

Introduction to
Franchising
 Brief Outline

• What is franchising?
• Types of franchising
• Why franchise? Why is franchising important
to SMEs?
• Franchising in the Philippines
 Unscramble these businesses
• MdlcDonas
• HoalidynIn
• Sbartkucs
• DonPomizziesa
• Waybus
• Potoffscie

What do these businesses all have in common?

 The word “Franchise” is derived from the French
word “franchir” which means to free or “franc”
signifying free.

The English word “enfranchise” means granting

rights to those that do not have the right. This means
that to have a right to do something, a franchise
must be granted.
 I. DEFINITIION OF FRANCHISING

a contractual relationship between the FRANCHISOR

& FRANCHISEE in which

FRANCHISOR offers or is obliged to maintain a

continuing interest of the business: KNOW-HOW,
Training, wherein the Franchisee operates under the
common trade name, format or procedure controlled
by the franchisor.

and in which the FRANCHISEE has made or will make

a substantial capital investment in his business from his
own resources
 Key terms
• Franchisor – The person or business who offers to
franchise to other businesses its trading methods,
products and business logos

• Franchisee – A person or business buying the

franchise

• Royalty – A payment made to the franchisor based on

the sales turnover of the franchise
 II. DEFINITION OF FRANCHISEE AND
FRANCHISOR

• Franchisor is one who

grants the right, owns the
trade name, provides
support and receives
payment for such rights
and support provided.
•
 II. DEFINITION OF FRANCHISEE AND
FRANCHISOR

• Franchisee on the other

hand, is the one granted
the right to use the trade
name, do business,
receive support and pay
for such rights and
support received.
Some popular business format franchises includes:

Restaurants:
•KFC
•Mc Donalds
•Pizza Hut
•Taco Bell

Retail:
•Blockbuster Video
•Radio Shack
•The Athletes Foot
•GNC Franchsing

Lodging:
•Choice Hotels
•Bass Hotels/Holioday Inn
•Marriot Hotels
Convenience:
•7/11
•Family Mart
•Mini Stop

Health and Beauty:

•Merle Norman Cosmetic Studios
•Supercuts
•Jenny Craig International
•Cost Cutters Family Hair Care

Business Services:
•Mail Boxes etc.
•H&R Block
•Ace America Cash Express
•Kwik Copy
 TYPES OF FRANCHISE

• 3 main types of franchise:

– Product distribution franchise;

– Business format franchise; and
– Management franchise.
 PRODUCT DISTRIBUTION
FRANCHISES

• A product distribution franchise model is

very much like a supplier-dealer relationship.

• Typically, the franchisee merely sells the

franchisor’s products. However, this type of
franchise will also include some form of
integration of the business activities.
 PRODUCT DISTRIBUTION
FRANCHISES

• Examples of famous product distribution franchise:

 PRODUCT DISTRIBUTION
FRANCHISES

Produces the syrup

concentrate

Sells the syrup

concentrate

Produces the final

FRANCHISEE drink

Retail Stores
Restaurants & Vending
F&B Outlets Machine
Operators
 BUSINESS FORMAT
FRANCHISING

• In a business format franchise, the integration of

the business is more complete.

• The franchisee not only distributes the

franchisor’s products and services under the
franchisor’s trade mark, but also implements the
franchisor’s format and procedure of conducting
the business.
Famous Examples
 BUSINESS FORMAT
FRANCHISING -

outlet in outlet in
Sale, Australia Marseille, France
 MANAGEMENT
FRANCHISE

• A form of service agreement.

• The franchisee provides the management

expertise, format and/or procedure for
conducting the business.
Famous Examples
V. HISTORY OF FRANCHISING IN THE
PHILIPPINES
According to SME Toolkit Philippines,
franchising has been in the country for over
90 years already.
The Singer Sewing Company’s franchising
scheme took off the phenomenon with
Product Distributorship
This has been the concept of business of
franchising in the early days.
V. HISTORY OF FRANCHISING IN THE
PHILIPPINES
First Franchisee
In 1965, A&W Restaurant established an
outlet in Highway 54 (now known as EDSA)
near the Araneta Coliseum. The concept of A
& W Restaurant in the Philippines followed
what is practiced in the US branches were
customers at the comfort of their cars are
served by women food attendants in mini-
skirts, black stockings and roller skates. This
concept of franchising came to be known as
Business Format franchising. This concept is
still the most popular to this day in the whole
world including the Philippines.
First Franchisor

Pancake House, a homegrown company was the earliest local

franchisor established in 1978. Today, it is owned by the Max’s
Group Inc. which owns the following other brands.
 Why is franchising important to
SMEs?
• Leveraging on a recognised brand name
• Enhancing business image
• Ensuring consistent quality
• Attaining higher productivity/better
motivated staff
• Access to good locations
• Economies of scale
• Reducing risks of failure