Opening a new business under a successful brand is a sure-fire way to success. Given that you’ve done your homework and the projections are looking good, you could be running a profitable operation in no time. However, the choice between buying into a franchise and purchasing a licence to operate under the brand, in exchange for a fee and portion of your profits can go one of two ways.
“It is essential to understand the difference between a franchising agreement and a licensing agreement, especially when seeking funding from a financial services provider,” says Morné Cronjé, head of franchising at FNB Business.
“Each business model is governed by a completely different agreement or contract and they operate in a unique way.”
When contemplating which option is right for you, consider how much independence you’d like to hold as a business owner, what kind of investment and share of the profits you’re willing to make and the type of relationship you’d like with your mother brand.
1Support vs autonomy
When toy industry behemoth Toys “R” Us filed for bankruptcy in September 2017, Toys “R” Us South Africa distanced itself from its US affiliates saying that the SA business is performing so well, it’s embarking on an expansion drive. How can the mothership be suffering while its SA counterpart is thriving?
Toys “R” Us SA is a privately-owned independent company operating under a license agreement with Toys “R” Us Inc. While the local version of the toy giant has purchased the right to use licensed material and intellectual property, the licensor has no control over the operations of the licensee.
With franchising, however, the franchisor exerts more control over the franchisee, but where the franchise lacks in autonomy, it makes up for in support. “While entering into a franchise requires more of an initial investment, the benefits of an entire organisation supporting you are powerful,” say the owners of US-based fitness studio Barre Forte.
While both franchisees and licensees pay an upfront fee and ongoing royalty payments to the owner of the brand or intellectual property – the franchisor or licensor – as a licensee, you bear the developmental cost and the risk associated with launching foreign operations.
Cronjé explains a franchising agreement as a duplication of a specific business model, governed or controlled through a franchise agreement where the franchisor holds all rights, including the business model.
“While franchise and license agreements vary significantly, looking at the cost distinctions between the two, it is generally more affordable to pursue a license agreement than a franchise agreement,” he says.
The initial investment may be higher for a franchise operation, but access to a proven concept, an established customer base and ongoing product and service innovation could end up wing worth the cost. Not to mention the support franchisees get in the form of ongoing training and assistance with the initial setup process.
“When it comes to training, the licensing model would only train staff on the product they are selling,” explains Cronjé. “This is very different to franchising, where comprehensive training is provided on how to operate the entire business.”
Licensing generally includes some components of franchising, however what the difference is that specific operational support systems aren’t dictated by the group, which could bode well for you if you’re looking for the benefits of a big brand without the red tape.
How Your Fast Food Franchise Can Attract Quality-Conscious Consumers
In a world where customers are becoming increasingly picky about where they dine and what they pick from a menu, it can be challenging to meet demands.
“Major foodborne illness incidents and outbreaks seem to be increasing. Even innocent or careless mistakes can sicken guests and ruin a restaurant’s reputation,” says Francine Shaw, President of Food Safety Training Solutions Inc. “Foodborne illnesses are 100% preventable and could be avoided if food service organisations adopted a food safety culture.”
Following a listeriosis scare in South Africa early in 2018, consumers have become more conscious about the foods they eat. Today’s customer is more concerned about the cleanliness of the food they buy over its taste.
“How food is sourced, prepared and served is uppermost with many diners demanding transparency when it comes to where they spend their hard-earned money.” – Franchise Association of South Africa (FASA)
The addition of more nutritious choices to your menu may be attracting health-conscious consumers, but it’s the quality of the regular – and perhaps popular – menu items that may win over consumers concerned with quality and not just calorie content.
Here’s how you can ensure your customers are at ease with having their next meal at any of your franchises nationwide:
1. Ensure everyone knows why and how it’s done
Even with buy-in from the top-tier, your food safety efforts will be futile if not incorporated into every training touch point and may appear to be optional, when they should be a priority, says Chris Boyles, vice president for The Steritech Institute. When you have well-trained workers who understand the ‘why’ behind food-quality policies, momentum is built and a culture of food safety is created.
“Through encouraging genuine, comprehensive behavioural shifts, your franchise will protect the brand, safeguard employees and sustain a reduction in risk,” Boyles adds.
2. Build food-quality impetus across the network
As a company that serves food to the public you’re in a position of great responsibility. It’s important to pass this message down to your franchisees too. “Co-operation between the franchisee and their employees in this regard cannot be stressed enough,” says Marcel Strauss, Managing Executive of The Fish & Chip Co. – which was voted the top fish brand in 2012.
To get your franchisees on board with tightened food safety regulations, ensure they’re aware of the looming food-quality changes you’re planning on implementing and the ROI for your brand. This enables them to make budgetary allowance for certain credentials and technology you may require to meet certain standards of food safety.
3. Tell your customers every chance you get
Give consumers a glimpse into your production process by including your quality mission statement on customer-facing materials such as your website, social media pages, profiles on external review sites and menus. “Use stories, images and videos to show your practices in action,” Katy Jones, Chief Marketing Officer at FoodLogiQ explains. “Take customers behind the scenes into internal discussions. Practice is the way you demonstrate your commitment.”
To incorporate quality and safety messaging into customer relations, you need collaboration between your food safety managers and marketing managers.
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.
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.”
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.
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.
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.
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.
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.
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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