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Researching a Franchise

Before you Sign that Contract

New franchisees need to do extensive research before buying into a franchise, but when reaching the point of signing contracts, it’s time to seek legal advice. Be Your Own Boss asked Ian Jacobsberg of commercial law firm, Eversheds why it is necessary to hire an experienced lawyer.

Chana Boucher

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Establishing and maintaining a healthy relationship between franchisee and franchisor is essential. A franchise agreement should provide a balance of obligations for both parties and should be properly understood by the franchisee. While it may be an extra expense for a new franchisee, hiring an experienced professional is important. Franchisees might not be familiar with the legalities of owning a franchise as well as their rights in terms of negotiating some of the terms in the agreement.

Which contractual oversights most often lead to serious problems down the line for franchisees?

Many franchisees, confronted with a comprehensive agreement, do not take the time to understand it properly before signing it. Franchisees who fall into this trap often find that what they expected to receive from the franchisor is not forthcoming and they have no way to compel the franchisor to deliver. The franchisee must ensure that whatever he expects to receive is clearly provided for in the agreement.

At what point of the franchise purchase should a franchisee consult with a lawyer?

When setting up a new business, there are other contracts that a franchisee will have to conclude, such as the lease of the business premises and finance agreements. Few start-up SME owners have
sufficient knowledge or experience to negotiate these agreements without some professional guidance and the franchisee should seek advice before signing any agreement.

How much should a franchisee expect to pay for a lawyer’s services?

It is impossible to say with accuracy. Most attorneys charge for their services on an hourly basis and the hourly rates vary according to the experience of the practitioner, whether he is a specialist in the field, and so on. How much of the attorneys’ time is required will depend on the length and complexity of the documentation on which he is required to advise and how much time he is required to spend in meetings with the franchisee and
other parties.

Are there any ways to reduce the legal fees?

The basic agreements – the franchise agreement, lease and finance documentation – are part of the foundation on which the business is built. Franchisees should beware of trying to reduce legal fees at the expense of getting the advice they need. That being said, one way of avoiding unnecessary costs is to give the attorney as much information and background documentation as possible, rather than letting him find things out at a later stage that necessitate amendments to agreements, at further cost to the franchisee. Consulting a specialist, who understands the business of franchising and knows what questions to ask, may cut down the time spent
in meetings.

Where can a franchisee go to find good legal advice?

In any discipline it is always advisable to consult a professional with specialised knowledge in the field. The attorneys on FASA’s list of service providers are all specialist franchise practitioners.

How can franchisees evaluate whether or not a lawyer is well qualified and experienced?

As already mentioned, the attorneys on FASA’s list of service providers are all specialist franchise practitioners. The attorney can be asked to give information of his experience and details of clients for whom he has acted. Although, for reasons of confidentiality, most lawyers will be reluctant to give out details of a client without the client’s consent.

What are some of the most important clauses to look out for in a franchise agreement?

Every clause in a legal document is significant and the franchisee must be sure that he understands the whole agreement. In general, the franchisee must be aware of his financial obligations and ensure that the franchisor is binding itself to deliver what the franchisee expects.

How binding are the franchising agreements? Can a franchisee terminate the contract before the renewal date?

Every contract, signed by ‘consenting adults’, is binding on the parties. In general, if an agreement is for a fixed period, neither party can terminate it without the consent of the other, unless the other has committed a material breach.

What can a franchisee do if a franchisor deviates from the original contract?

The signed agreement is binding on both parties, franchisee and franchisor alike. If the franchisor does not comply with the agreement, the franchisee can either cancel it and claim damages or compel the franchisor to comply. However, many franchisees encounter problems because they did not read the agreement properly and promises that might have been made verbally were not included in the document. The franchisee will have difficulty in forcing the franchisor to honour those undertakings.

Any further advice for franchisees?

The most important advice is to read each document carefully and understand it, and ensure that everything you expect of the franchisor is included before signing.

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Researching a Franchise

The Future Of Franchising Looks Smaller (And Fancier)

Franchises are adding smaller locations and reduced menu options, as niche markets emerge, to attract the customer of the future.

Diana Albertyn

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As the owner of a thriving franchise, you’re well aware of the fact that fluctuations in the world economy has both negative and positive effects on business. When it comes to your successful franchise, tough times could mean adopting new trends or seizing gaps, potentially resulting in a new franchise concept you wouldn’t have otherwise thought of.

“The buzz word in global franchising is ‘flexibility and adaptability’,” according to the Franchise Association of South Africa (FASA). “Whether a result of a need to inject some life into stagnant franchise brands or as a result of the new world order brought about by the recession, franchising is embracing alternative and options in a big way.”

Related: As Consumers’ Tastes Change Can Your Franchise Keep Up?

You can do this by either devising innovative areas to franchise or allowing more flexible ways for franchisees to operate to help with their bottom line. FASA has earmarked these as some of the biggest franchising trends in 2018 and beyond:

Smaller, more cost-effective franchise models

When franchisees don’t have high franchise fees and start-up costs to worry about, they can focus more on what customers want, and deliver. The added benefit of smaller spaces include having fewer employees and reasonable rental.

Among the new frontiers in franchising are the food court losing its legacy as the preferred setting for food franchises, as service stations increase in popularity in the industry. A number of brands – like Steers, Debonairs and Mugg & Bean On-the-Go outlets – are co-locating with major fuel retailers to create fully-integrated accessible centres.

Niche markets are offering one-of-a-kind franchises

“The opportunity to get in on the ground floor of a new franchise trend is also on the rise,” notes FASA. This could be offering a unique gourmet food experience in your outlets or a ‘green’ space of energy saving technology in your operations.

“Consumers have gained control of what they want,” says Morné Cronjé, head of franchising at FNB Business. “It is no longer about what you have on the menu, but how your product or service can be tailor-made to what a customer really wants.”

Founded just five years ago (2013), RocoMamas boasts over 60 franchise outlets, clearly responding to the essence of this trend –allowing consumers to build their own burgers without having to pay for items they’d rather leave out.

Related: Key Franchising Trends To Consider For 2018

Stay ahead of the game

For long-term success, franchisors who want to expand their business should start exploring beyond present circumstances and current predictions.

“2018 will no doubt bring its challenges, however for every challenge there is a window of opportunity to explore. We are advising franchisors to scrutinise these trends carefully, it can definitely give them a boost for 2018,” says Cronjé.

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Researching a Franchise

As Consumers’ Tastes Change Can Your Franchise Keep Up?

More of your customers are eating in, and if you’re not packaging, portioning and pricing your food accordingly, they’re heading to a retailer that does.

Diana Albertyn

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It’s generally believed that it’s cheaper to cook your own breakfast, lunch or supper than to go out and pay a much higher price for the same food in your fridge at home. But today’s consumer’s live fast-paced lifestyles – so food is becoming more about convenience.

31% of 6 022 middle-to-high income South African earners surveyed by BusinessTech, put eating out and entertainment at the top of their list of things they’re most willing to cut their spending on in 2018 to save money. Research by supermarket giant Pick n Pay correlates, reporting an increase in customers buying quality convenience food, not just to entertain at home, but for dining at home.

Related: Driving Your Business Growth Towards More Customers

Consumers are empowered by variety

You’ve heard about the ‘fast casual generation’, aka Millennials? They are demanding healthy, affordable eating experiences. But do you know how this affects the future of the food industry, and your business in particular – because they’re not the only ones adapting their lifestyles.

An increasing number of food brands and chefs are compelled to create complete ranges of new, convenient meal options that are not only packaged, portioned and precooked attractively, but affordable too.

The fastest growing sector of retail foodservice for the past four years has been the convenience store sector. Non-traditional avenues of distribution are growing, gobbling market share while establishing new patterns of consumption, price points, and customer loyalty.

Shoppers are becoming value-focused

A savvy franchise would acknowledge that although pre-packaged and pre-cooked convenience food isn’t a new trend among consumers and supermarkets, it is gaining popularity. “Some of the most notable trends in 2017 were an increasing shift to convenience foods as customers looked for both value and convenience,” says Pick ‘n Pay’s Head of Marketing, John Bradshaw.

Related: 5 Techniques To Leave Customers Grinning And Vowing To Return

Value for money and healthier food choices will continue to be top of the convenience food list for consumer in 2018, as more shoppers cut down on luxuries.

“We’ve seen significant growth in the number of customers looking for an easy way to enjoy a good meal without the cost of eating out,” says Bradshaw.

But he cautions that South African shoppers have always been value-focused, and while the most significant shift Pick ‘n Pay has seen is how all its shoppers, no matter what their income levels, are watching their budgets.

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Researching a Franchise

Maximise Your Social Media Reach This Holiday Season

Quick and cost-effective, social media is your best tool to reach target markets when it matters most – during the holidays.

Diana Albertyn

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It’s not just the end of the year that can be lucrative for businesses. School holidays and other major breaks during the year present consumers with more time to spend shopping. Why not ensure money is spent at your franchise by capitalising on the minimal cost and maximum exposure of social media?

You don’t have to create entirely new deals or promotions from what you may already have running on your store, but find a way to make it special for your social media followers, suggests Kelly Mason, marketer at Customer Paradigm.

Holiday campaigns on Twitter, benefitting from popular hashtags, streaming live content, and receiving information instead of just distributing it via social media are just some of the ways to stay ahead of the competition.

Related: Why Your Business’ Social Media Marketing Strategy Is Probably Wrong

Know your customers well

The first step to attracting customers and getting them to complete a sale is understanding their customer journey.

“Being able to document where they spend their time online, which social channels they use most, and what they’re reading or watching on those channels is a huge plus. Finding that crucial information is fairly easy to do, thanks to modern-day marketing tools and resources,” advises Paul Herman, ‎VP: Product and Solutions Enablement Group, at Sprinklr, a unified customer experience management platform for enterprises.

The better you understand your customers, the easier it is to reach them through a campaign optimised for their interests.

Master social listening

You could be using social media all wrong in the run up to all your holiday campaigns. Perhaps it’s time you used this platform to listen to your customers?

“Through social listening, marketers can identify major trends and product keywords in their industries,” says Herman. “For instance, knowing those keywords can help marketers identify which social platforms are more popular for a target audience. With that information, they can make smarter decisions about where to spend their money and which products or services to promote on each platform.”

Related: 10 Laws Of Social Media Marketing

Use the information gathered to determine what customers like about your product, what they dislike about it, and how you can improve upon it so they can buy more of it. The more of this data you collect, the better and more effective your interactions with customers will be.

Try something new

50% of consumers look for a video of the product they want to buy before going to an ecommerce store to buy it, according to a 2016 Google survey. “Video can be an extremely effective way to get your customers to take action – in this case, to make a purchase with your store,” adds Mason.

Video adverts are often used as an experimental tool in social marketing and switching it up on platforms such as Facebook Live, Instagram Live, Instagram Stories, or Snapchat – depending on your brand’s activity and your audiences’ interests – can help attract customers during seasonal periods.

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