What is a franchise in simple words - how to find, choose and buy a franchise, the pros and cons of franchising. What is franchising and franchise: understand the intricacies, get to know the giants What is the name of the franchise seller

In modern society, the number of people with business acumen, who are able to achieve high results in work due to their diligence and perseverance, but who are completely devoid of ideas for creating a business, prevails.

It was for such representatives of society that the first franchise was once launched and a worldwide network was developed, allowing millions of people who want to start their business NOT from scratch.

Let's get into the definitions!

With all the innovations introduced, many understandable and not very definitions have entered our lives.

And not everyone can figure it out on their own. For example, what is the difference between Franchise and Franchise?

To begin with, let's look at the most popular foreign expressions that have come into our lives with this type of business:

1. Franchising - this is a way of organizing business in which a large and successful company announces a “set” of potential partners who are ready to act under its brand and on its behalf, act according to established rules and pay a certain fee (royalties) for using this brand.
2. Franchise - it is a “package” of intellectual and tangible property transferred by the franchise owner to a newly minted partner. Based on the materials and knowledge received, the entrepreneur must establish a partner company and develop it under the strict supervision of curators from the parent organization.
3. Franchisor is a company that owns a franchise, distributes it and owns the rights to the brand.
4. Franchisees - this is a legal entity that has bought the rights to a franchise (franchising package) and carries out activities within its framework.

Thus, from the above definitions, we can conclude that franchising and franchise are related concepts which should not be confused.

After all, franchising is the process itself or a type of interaction between two legal entities, such as a concession. A franchise is an offer or a package purchased on the basis of a franchise agreement.

By understanding the difference, you will take the first step towards the successful development of your own franchisee firm.

Pros and cons of franchising

The second point in our review will be the advantages and disadvantages of this type of cooperation as franchising. Learn how to choose according to individual criteria.

Positive sides:

• by purchasing a franchise, an entrepreneur receives a fully tested and proven business project;
• the brand under which the partner legal entity acts is already known to a wide range of people and has its own loyal target audience. It will not have to be advertised and "sold" to the public, to earn its trust;
• employees of the parent company have already gone through all the difficulties of the stage of starting a business. So you will have reliable “guides” and many real running projects from which you can learn from experience.

As for the negatives:

1. Rigid business rules- under the franchise agreement, the franchisee company does not have the right to develop its own business strategies and apply business practices that are not specified by the policy of the parent organization. Violation of this rule threatens you with large fines and termination of the contract (as the maximum punishment).
2. The focus is not on you- this means that all the merits of your partner company will in any case be attributed to the entire brand and the franchisor itself, as a result.

So, in this case, "a medal of two sides" - you can and should work well, but you will not be able to get all the "fruits" of your efforts.

Features of the franchise

One successful businessman said, “Franchising is the enemy of creative thinking. Yes, and thinking in principle. This means that the entrepreneur, over time, weaned to think independently and look for original ways to solve problems.

He just goes on the beaten path, and this kills creativity. And "business sharks" are getting smaller and smaller.

Therefore, whether to choose this way of cooperation is up to you. If you are accustomed to and like to follow strict regulations, show high results within them.

If you prefer not to take risks, but to act according to proven schemes.

If your experience tells you that you cannot or do not want to create anything fundamentally new, then this business is for you.

Choose your franchise carefully commensurate your financial opportunities with existing risks. Make sure that the business offered to you will be really in demand in the chosen region, and the competition will not stifle the start-up business. Learn more about this and other issues in the following video:

Weigh the pros and cons and make an informed decision! Only in this case, success awaits you, and franchising will prove its effectiveness!

Franchising is a form of long-term commercial cooperation between companies, in which the franchisor company transfers the rights to sell its goods and services to the franchisee company, which also receives the rights to use the franchisor's trademark, its corporate design, know-how, business reputation, marketing technologies."
(According to the materials of the website of the Ekonika-obuv company, which develops a chain of stores based on franchising)

Recently, franchising has attracted increasing interest from manufacturers and trading companies as a way to create a stable and flexible network of retail stores. Russian companies are especially attracted by the opportunity to open new stores within the framework of franchising without diverting their own funds. The first results of the work of franchising projects in the retail market indicate that the most successful companies have gone part of the way in this direction, and the attempts of many others have not yet been successful.

What is Franchising?

The relationship in the franchising system is most clearly shown in Fig. 1. The organizer of the franchising distribution network - the franchisor who owns a certain trademark and know-how - provides the franchisee - a small enterprise included in the franchising network - the right to conduct business under its trademark, corporate design, marketing technologies and a certain set of goods and services. The franchisee, which is an independent economic entity, undertakes to the franchisor to comply with the established quality standards for products and services, as well as the technology of production and service operations, pay the appropriate remuneration and grants the franchisor the right to control it.

Figure 1. Scheme of relationships in the franchising system

The franchising system is mutually beneficial for both parties for several reasons. For the franchisor, firstly, this is an effective means of growth that does not require investments. The amount of savings is easy to calculate. Under the terms of the Kopeyka retail chain, which uses franchising technologies, for example, the cost of a complete set of equipment for a store with an area of ​​350-400 sq. m. is $ 300 thousand. The company gets the opportunity to develop without buying new retail space, the shortage of which is noted by retailers. The second advantage of the franchise distribution network is the great motivation of small businesses to develop their business, because the manager of a small business is not an employee, but an owner. From the point of view of the franchisee, work under the brand name of a network company is a kind of guarantee of the "survival" of the business. According to statistics, among independent companies, only 15% survive the first five years, while among franchised small businesses, every 7 out of 8 companies successfully develop.

However, the franchising system has not only advantages. One of the limitations of this system is the large role of personal relationships between the first persons of the network company and franchisee partners. Often it is the establishment of relationships and contacts that is decisive for the success or failure of franchising. Trying to reduce the risks of joint business with unfamiliar companies, some network companies introduce special requirements for potential partners. For example, the franchise owner of Rostix restaurants, RosInter, as an additional requirement for the franchisee, puts forward the experience of business relations before franchising.

Another problem requiring constant attention is the need for continuous improvement of the franchise network control system. This is evidenced by the experience of Russian networks, which, by domestic standards, have come a long way in this direction. The key task of the franchising system of the office furniture manufacturer Felix at the moment, when the stage of formation is already behind, was to control the activities of the franchisee. The methods and forms of control used by grid companies are different and depend on the stage of development of the system and the field of activity. This issue will be discussed in more detail in the next article.

Do not forget about one more aspect of franchising relations that carries a potential risk for the network organizer - possible competition from the trained know-how and technologies for doing business by the franchisee. As the franchisee firm gains experience and acquires strength approximately equal to the strength of the franchisor, it becomes increasingly difficult for him to keep it in his power. In order to reduce possible risks, McDonald's franchise agreements, for example, stipulate the requirement to transfer ownership of the franchisee's enterprise to the network company in case of violation of the agreement, in particular, disclosure or unauthorized use of information and know-how of the system.

How to determine that your company is ready to create a franchise network?

Not every company has all the necessary prerequisites for successful development based on franchising. There are already examples of this in the domestic practice of creating retail distribution networks. Here are some basic criteria that allow us to give a preliminary assessment of the success of a franchise project.

Firstly, a network company must have a brand in one form or another: a trademark, trade name, trade symbols, logo, etc. Recently, the trend of branding products is very common among domestic companies. Few companies have a truly "hyped" patented trademark associated in the minds of consumers with quality goods and services. It takes years, and sometimes decades, to create a full-fledged, recognizable brand. According to Richard Hamilton, CEO of one of the leading US clothing manufacturers Hartmarx Corporation, it sometimes takes 50 years to build a brand. A striking example of a recognizable brand is McDonald's. The brand is the intangible asset that this company values ​​the most. With a well-functioning franchising system, McDonald's does not operate this way in growing, volatile markets. For example, until recently, all fast food restaurants of this chain were opened in Russia only on the terms of 100% investment of their own funds. It would seem that everything should be the other way around: in an unstable economy, the risk of losing the money invested is very high. But for McDonald's, it's far more important to keep the brand than the money invested.

The business of a network company must have significant distinctive features, its own image, method, system that allow the consumer to accurately distinguish it from other analogues and have a unique value in his eyes. This is often overlooked by new franchisors. One of the Moscow-based companies, which is one of the five largest Russian wholesalers of kitchen appliances and furniture, started building a sales network of retail stores based on franchising two years ago. Despite the reputation of a reliable and profitable supplier, it has not been able to create a network of loyal franchise partners during this time. The company's competitors offer stores the same products at the same prices. The loyalty of partners is easily broken by an additional discount or prompt delivery. Retail outlets do not comply with the terms of the contract and purchase part of the assortment from competitors; as a result, none of the outlets has reached the required profitability indicators. This result is natural: the company cannot offer franchisees either a recognizable brand or special technologies in the field of service, supplies or warranty service.

Another condition for the successful development of a business in the form of franchising is a well-calculated economic model of the franchisee. The amount of his income must be sufficient to return the initial and current costs of both the network company and the franchisee, to ensure acceptable earnings for the franchisee to compensate for his work, as well as all types of payments received from the franchisee to the parent company. Examples of business cases of the economic model of franchising retail stores can be found below. Note that the economy here is considered as the second most important condition. This is not accidental, because It is the presence of a brand and a "perfect" business system that forms the basis of franchising. By the way, the word franchising is translated as preferential entrepreneurship.

And finally, the last of the considered criteria for readiness for the introduction of franchising is the approbation of replicated technologies and business methods. Business success must be demonstrated and proven in practice. Network companies open their own outlets in order to have ready-made solutions for operational, marketing, financial and other problems. Not so long ago, a decision was made in the Kopeyka franchise network to develop a new outlet format: a mini-store with a total area of ​​200-400 sq.m. The total number of "traditional format" franchise partners at that moment was 3 enterprises. The formation of standard solutions for potential franchisee partners was carried out on the basis of our own store of a new format during the first few months of its operation: a product matrix was developed, the required amount of investment in equipment and IT technologies was calculated, and the recommended store staff was approved.

What type of franchising suits your company best?

In the field of trade, two variants of franchising networks, different in terms of organization principles, are used: commodity franchising and business format franchising. The division between them is not always obvious, but some characteristic features of each of them can be distinguished.

In accordance with the terms of product franchising, the franchisee becomes the sole seller of this product in the assigned territory and the exclusive representative of the franchisor's trademark. The main condition of this transaction is that the franchisee undertakes to purchase products only from its franchisor and completely refuses to sell similar products from other companies that can compete. This type of franchising is actively used by manufacturers and wholesalers. Among the Russian retail chains are Monarkh, Ekonika-Shoes, Red Cube, For Soul and Soul. In addition to the requirement of a network company to work only with the range of its products, as a rule, there are no other strict requirements for organizing a business. Franchisees receive general advice on store design, outdoor advertising and product display. Commodity franchising is characterized by a relatively low degree of regulation of duties due to the homogeneity of activities. For example, within the scheme of working with partners of the footwear manufacturer Monarch, there are minimum requirements for the size of the retail space, the quality of lighting, advertising signage and product accounting. However, the very presence of certain rules and requirements for organizing a business indicates that the system includes elements of a business format, i.e. certain business standards and rules. Another example of product franchising from Ekonika-shoes contains more requirements and standards, in particular, it is the development of a salon design project based on a standard project, the use of a certain type of retail equipment, regular supplies of corporate identity and advertising elements, as well as sketches for making uniforms, etc. On the one hand, the absence of strict requirements helps to attract potential partners, and on the other hand, it leads to the erosion of the network company's brand. Many experts believe that such a situation has developed with the Eldorado franchise network: differences in store formats lead to the fact that the consumer does not understand what is the difference between these stores and competitors' analogues. And yet, the benefits that the parent company receives as additional distribution channels when using commodity franchising are quite obvious.

Figure 2. Types of organization of franchising retail chains

More costly and complex in terms of organizing a network structure, the necessary time to launch the system, as well as financial investments and human resources, is the business format franchising, which is used to develop food retail chains. The Pyaterochka, Kopeyka, and Seventh Continent networks are developing according to this type. A distinctive feature of this type of franchising relationship is the high standardization and regulation of all operations - from finding a place for a store to descriptions of work processes, such as opening a store, staff actions in case of problems (broken glass, power outages, etc.), the process of moving goods from the warehouse to the trading floor, etc. I.e. business format is understood as an organizational structure, "typical" for any network store. In addition to detailed regulation of activities, this type of franchising involves close contact between the network company and the franchisee, the constant exchange of information between them and the strict coordination of marketing plans and programs. Representatives of Kopeika usually formulate the principle of the network operation in this way: we have a franchisee with everything in common - a single information system, uniform prices, uniform equipment, uniform advertising. This network uses the so-called "hard" system of product distribution and the formation of a product range, which involves the complete repetition of the general technology of the network by the franchisee. At the same time, the entire logistics process from the purchase of goods from suppliers to replenishment of stocks in the franchise store is taken over by the network company that provides the franchise. All that remains for the franchisee of Kopeika is to trade and monitor the compliance of the work of their unit with general rules and network standards.

We emphasize once again that the division of retail chain franchising into two types is often conditional; in practice, commodity franchising systems sometimes have powerful business formats that ensure reproducibility not only of the product range, but also the basic rules for organizing a trading floor, zoning, placement and placement of equipment, automation, distribution schemes, warehousing, staff motivation and the formation of a recognizable store image.

What are the obligations of the network company to its franchisees?

The maintenance of franchise stores by the network company is carried out in two stages (as well as the payment of remuneration for this service): initial and permanent. The initial service package includes the following activities.

1. Market research and location selection. As a rule, a network company explores regional markets and, upon identifying potentially promising ones, begins searching for franchisees in these regions. This is how Felix operates, actively developing regional franchising. The next step is to choose a location for the future franchise store - for this, special assessment questionnaires are usually developed. The need for special evaluation procedures is emphasized by many franchise networks - from the non-rigidly standardized Monarch and Red Cube to Pyaterochka, organized according to a full-fledged business format. The head of the Russian representative office of Beneton Andrey Grigoriev personally travels to each of the regions where it is planned to open partner stores. In the rating system of this company, the location of the store in a crowded part of the city is very important, and the concept of "center" is regarded as an insufficient condition, it is desirable that these be central squares, intersections. A store is considered well located if it is on the right side of the street (Beneton's store scoring system assumes that few people walk on the left side). Beneton has other criteria for the best location, which will remain the best in five years.
2. Development and planning of commercial premises. For example, the minimum area for Beneton stores is 150 sq.m. In this network, it is obligatory to purchase fashionable retail equipment from designated suppliers and repair the store according to company standards. After the store is authorized, the franchisee sends its plan to Italy, where the marketing department develops a two-part design project. The first is a set of drawings for repair and redevelopment, and the second is devoted to the placement of fashion furniture. Increasing the attractiveness of the offer, some chains (Ekonika-obuv) offer supplies of equipment on a leasing basis. The main points of the assessment methodology, as well as the layout of retail premises, are shown in Figure 3.
3. Financial advice. This item can often be found in the offers of franchisors. For example, the Rostix restaurant chain, in addition to developing a business plan jointly with the franchisee, includes in the franchise package the partner’s business targets, a typical restaurant opening budget, an indicative franchisee payment schedule, and also provides the opportunity to obtain credit funds on preferential terms.
4. Operations Guide. As a rule, the manual or instructions define the algorithm of actions and rules for the work of the franchisee in the field of general store management, necessary reporting, financial and accounting, marketing and advertising, customer service standards, recruitment policy and employee motivation. According to the figurative expression of President Marta, Spar franchisee, Georgy Trefilov, he received a whole suitcase of documentation that determines the operation of the supermarket.
5. Training programs for managers and employees of franchisee firms. A network company needs effective training programs to replicate the technology and the way it does business. Most franchise networks have their own training centers, which provide various courses and programs. Training for a sales assistant is usually carried out within 3-5 days and includes the rules of display, the basics of customer service, mastering the program for accounting for goods. Several groups of employees are trained in the Kopeika training center: cashiers, accountants, senior managers of the trading floor, and managers. For managers, an internship is provided in the existing store of the chain. Training is most often carried out free of charge, because. its cost is included in the franchise package.

Maintaining the franchise network also requires special programs from the network company. They can be grouped into the following main areas.

1. Local leadership. Each franchisee is assigned a special manager in the parent company, whose duties are to solve the operational problems of the stores. Sometimes the manager performs the functions of monitoring the work of partners, usually this is how work is arranged in a network based on commodity franchising, for example, in the Monarch network. In networks built on the basis of a business format, these two functions are separated between different specialists.
2. Commercial planning and provision of promotional materials. Many Franchisors provide their partners with standard marketing plans and recommendations for advertising both before and after the opening of the store, its frequency, special promotions during sales. For each season, companies such as Beneton, Euromoda, Anton, Ekonika-obuv prepare special guides on laying out, placing goods on the trading floor, on the most winning combinations and other merchandising techniques.
3. nationwide advertising. Both franchisees and franchisees are required to advertise, but the franchisee usually does so at the regional level, while the franchisor does so at the national level. The basis of the conflict that began in early 2002 between Spar and Martha was precisely the lack of nationwide advertising and Martha's dissatisfaction with this situation.
4. Quality control. Perhaps, among the domestic franchise networks there is not one in which this rule would be neglected. For example, the Eldorado chain practices monthly trips to stores and checks on the proposed assortment. If competitors' goods are found on store shelves, the franchisee is fined 10 times the retail price of the goods.
5. Providing market information. Few of the domestic franchise owners are willing to do research and share this information. Such services are provided by companies that carefully build up the franchising system, such as Rostics. The franchisor must conduct research and development in the field of category management, services, system development, market strategy. Network company Ekonika-obuv provides franchisees with assistance in studying the regional market, provides information on changes in the economic situation and market conditions in other regions.
6. Retraining of management and employees. The contracts concluded with partners (as a rule, business-format systems that require accurate reproduction of new technologies of the parent company) stipulate terms - 3.5 years - after which the franchisee is obliged to send their key employees for retraining. Most often, this service is paid.

So, we have considered the general principles of building franchise networks. The issues of determining payments in the system, the composition of the franchise package, pricing and assortment management, features of regional development based on franchising, launching a franchise store and other issues remained outside the scope of this article. More on this in the next article.

In this material:

The concept of franchising

From a literal explanation, franchising is a type of preferential business. This is the name of one of the many forms of equal business relations and partnerships. With this connection, the franchisor and the small firm have equal rights of cooperation, sealed by an agreement.

More precisely explained, franchising is a kind of long-term business relationship of several companies, with a few notes:

• a well-known company sells the rights to a particular product to a franchisee;
• independent businesses capitalize on the popularity of the franchisor.

The whole essence of this system lies in the fact that a large company that has a good reputation among consumers concludes many contracts with small and, for the most part, independent firms. Thanks to this form of cooperation, independent entrepreneurs receive special rights to the product using a trademark already well known to consumers.

The names of the parent company and the name of the independent enterprise are clearly defined:

• franchisees is an independent company (or entrepreneur) that acquires from the franchisor the right to study and assist in creating a business, while paying a certain fee for the operation of a well-known brand, know-how and additional systems provided directly by the franchisor;
• franchisor is a well-known company that has a widespread trademark and provides it for use by independent enterprises (entrepreneurs) for a fee, and, in addition to the brand name, provides additional systems and know-how.

In the case of small companies that have just been created and are not yet known, this form of cooperation is very useful and even convenient. Particular convenience is due to the fact that an independent company does not need to spend a lot of money on advertising, since the intended consumer will receive a product with a trademark familiar to him. Brand popularity and the number of possible consumers also play a significant role. Thus, the greater the fame, the more likely the franchisee will be quickly promoted.

It should be borne in mind that the amount of services provided for an independent company, of course, will be much lower than the cost of advertising and promoting your own trademark.

Franchising interactions

As a rule, a company with a popular trademark (the franchisor) does not form an association with a single small company (the entrepreneur). Instead, the franchisor creates many contracts with many different, small enterprises (companies), thereby creating a whole network of its commodity, industrial offshoots. As a result, the franchisor forms small enterprises that are independent of the parent company and use the franchisor's trademark.

It should be noted that the contract includes full compliance with all the rules, which may include:

• the principle of trade;
• uniform (and other little things);
• product manufacturing.

While the franchisee, under the contract, follows the prescribed rules, the franchisor is obliged to provide all possible support to the independent enterprise (entrepreneur):

• provision of raw materials;
• delivery and supply of equipment;
• technology transfer;
• providing the necessary knowledge to all service personnel;
• additional services to assist in accounting.

The franchisee also has full rights to:

• operation of the trademark of the parent company;
• application of the style and design of the parent company;
• using the reputation of the parent company among other enterprises, which, to one degree or another, are equated to the franchisor.

A franchise is a variation of doing business that is provided by the franchisor to the franchisee at the time of the conclusion of the contract. Also, the franchise is called: franchising business package. This package usually includes:

• detailed manuals for the work;
• other, additional documentation that makes the transaction of enterprises equally equal.

In the vast majority of cases, the relationship between the parent company (franchisor) and an independent enterprise (franchisee) brings the same benefit to all parties.

Franchisees are required to strictly follow the prescribed rules.

1. Conduct business on halts set by the franchisor.
2. Fully comply with the franchise.
3. Take direct part in all events and promotions created by the franchisor.

As a result, the franchisor gives the franchisee everything he needs:

• attracting a mass of unique consumers;
• many new deals;
• increase in sales;
• high-quality advertising at no extra cost.

Thanks to the work done by the franchisor, the franchisee does not need to compete with other independent, and not only, enterprises. This is of great importance, because for the franchisee, without support, this would be a very big problem.

The franchisor, as the parent company, is obliged to provide the franchisee with all the necessary assistance in doing business, so that the independent enterprise is able to perform the operations required of it with clear regularity.

Because of this form of cooperation, a small business gets the opportunity to conduct a licensed, independent business activity with the maximum use of the trademark of the franchisor and its customers.

Franchisors usually take on:

• advertising campaigns;
• delivery of products.

Under such a system, the franchisee of the contract under any circumstances remains an independent enterprise and undertakes to pay the agreed, under the contract, fee to the licensor for the provision of all services prescribed by the franchise. Franchisors cannot violate contracts, as this threatens with numerous penalties.

• legal demand for financial services (credit) from the franchisor;
• necessary equipment (with leasing conditions);
• training of employees (improvement of qualifications, additional consultation, etc.).

In a general sense, franchising is:

• business development of any kind with financing;
• a way to sell a variety of services and products.

Franchising is divided into several types:

• product franchising - large sales networks are organized, while the parent companies are responsible for advertising, know-how, spare parts and tools;
• franchising of services - numerous foreign companies work according to this principle: they rent premises, train employees in the necessary work skills, provide equipment required for production.

Features and notes of franchising

In an abbreviated explanation, franchising is a system of relationships that consists in the transfer by the franchisor (a company that is especially popular among consumers) to a franchisee (an independent company, without an established image) of a number of its products (marking and style).

The franchisor, at the same time, is obliged to provide full support to small businesses:

• provide technological assistance;
• and full consultation on any issues.

Sources of income of the parent company

The franchisor receives the main profit:

• from supplier discounts;
• from the initial contributions of an independent organization;
• from advertising fees of small companies;
• from premiums received after selection of premises and technologies for franchisees;
• from interest on loans provided to participants in cooperation.

In a general sense, franchising is the "lease" of a trademark or commercial designation. The use of a franchise is governed by an agreement between the franchisor (the one who grants the franchise) and the franchisee (the one who receives it). The content of the agreement can be different, from simple to very complex, containing the smallest details of the use of a trademark. As a rule, the contract regulates the amount of deductions for the use of the franchise (it can be fixed, one-time for a certain period, constituting a percentage of sales). There may be no requirement for deductions, but in this case, the franchisee undertakes to buy a certain amount of goods/works/services from the franchisor.

Conditions for the use of a trademark/brand may serve as a separate clause of the contracts. These requirements can be very simple (for example, the franchisee has the right to use the brand in a particular industry) or rigid (for example, the franchisee undertakes to use the equipment in the store in strict accordance with the requirements of the franchisor - from the size and color of the shelves to the staff uniform).

• the franchisor receives royalties for the use of his trademark;
• the franchisee pays an initial fee for the right to become part of the system;
• The franchisor provides the franchisee with a business system.

The history of franchising

The prototype of the modern franchising system is considered to be the Singer sewing machine sales and service system. The founder of the world famous Singer Sewing machine company, Isaac Singer, became the founder of modern franchising. Starting in 1851, the Singer firm entered into a written franchise agreement with distributors of goods, the agreement transferred the right to sell and repair sewing machines in a certain territory of the United States.

At the time of the organization of the world's first full-fledged franchise system, Singer's company ensured the mass production of sewing machines, which allows maintaining the most competitive prices, but at the same time did not have an established service system that would allow organizing maintenance and repair of machines throughout the United States. In this regard, a franchise system was created, which provided financially independent firms with exclusive rights to sell and service sewing machines in a certain territory. These early franchises were, at their core, operating distribution agreements with the additional obligation of the franchisee (dealer) to service the machines.

Modern franchising experienced a real upsurge when General Motors began to use franchised dealerships.

Classical commodity franchising, which distributes goods and services in the franchisor - franchisor system, began to change only in the 50s of the last century.

In Russia, franchising is beginning to become widespread only in recent years. In particular, most of the Pyaterochka grocery discounter chain, part of the Euroset communication stores, the 2GIS electronic reference card, 1C company operate under the franchise scheme.

Franchising under Russian law: commercial concession agreement

In Russian law, franchising relations are regulated commercial concession agreement.

Under a commercial concession agreement, one party (right holder) undertakes to grant the other party (user) for a fee for a period or without specifying a period, the right to use in the user's business activities a set of exclusive rights belonging to the copyright holder, including the right to a trademark, service mark, as well as rights to other objects of exclusive rights provided for by the agreement, in particular for a commercial designation, a secret of production (know-how).

A commercial concession agreement provides for the use of a set of exclusive rights, business reputation and commercial experience of the right holder in a certain amount (in particular, with the establishment of a minimum and (or) maximum amount of use), with or without indicating the territory of use in relation to a certain area of ​​business activity (sale of goods received from the copyright holder or produced by the user, other trading activities, performance of work, provision of services).

Parties under a commercial concession agreement may be commercial organizations and citizens registered as individual entrepreneurs.

Benefits of franchising

Benefits for the franchisor

For the franchisor, the priority benefit of franchising lies in the fact that he receives, albeit a small, but guaranteed stable sales volume of his products, since the franchisees are obliged to buy from him the consignments of goods, consumables or other products / services specified by the contract. If the income is stable, then it can be successfully planned for the future, which means that new directions can be developed.
With all this, the franchisor is not burdened with the difficulties associated with a number of expenses that ordinary players have - training and recruitment, quality control, etc. In addition, the development of a franchise network is an excellent brand advertisement that does not require special financial investments.

Benefits for franchisees

Using a proven business system

Before offering his franchise on the market, the franchisor must "bring to mind" his business system, work out all business processes and prove the effectiveness of his business. Moreover, for the effective development of the franchise network, the franchisor must have a flagship enterprise, on the basis of which the business is cloned. Therefore, when acquiring a franchise, an entrepreneur acquires an already proven and proven business model that has proven its effectiveness.

Opportunity to start your own business

Despite the fact that the franchisor has a certain degree of control over the franchisee, which is mainly aimed at improving the efficiency of partners by identifying possible problems of partner enterprises at the stage of their inception, the franchisee retains economic and legal independence.

Choice of industry

A potential franchisee has the opportunity to get acquainted with the franchisor's business before the stage of investing its own funds. This can be done on the basis of open information - the commercial offer of the franchisor and its operating enterprises, both own and partner.

Opportunity to reduce risks

By opening a partner enterprise, with a well-developed franchise program, the franchisee becomes part of the "family", that is, unlike the opening independent enterprise, the franchisor does not leave partners face to face with many problems and risks of a start-up business.

Successful market entry secured

One of the main requirements for a franchised business is the demand for goods or services provided by the franchisor. Therefore, by buying a successful business idea and starting its activities under an already well-known brand, the franchisee already has a circle of consumers loyal to the brand by the time they open their business.

Minimum advertising and marketing costs

Due to the fact that the franchisee begins to operate as part of a well-known network, his initial advertising costs are reduced to providing advertising for the opening of the franchise business in the local market. The same is the case with the current advertising, which is aimed at the "promotion" of the franchise network in this particular region.

Gaining access to the franchisor's knowledge base

The franchisor, providing partners with his business system, transfers not only a well-functioning mechanism, but also an “instruction” for its effective use. The franchisor teaches its partners how to effectively build a business, taking into account all its specific features.

Guaranteed Supply Chain

Since franchising, as a rule, is a priority activity for companies, and partners - franchisees - have the best conditions, the franchisor seeks to provide this area with the greatest resources, including delivery issues.

Franchising Disadvantages

• Franchisees are forced to follow the rules and restrictions set by the franchisor, even if they do not bring maximum benefit to the business.
• Franchisees are often required to purchase raw materials and products from suppliers designated by the franchisor, which may limit their access to the free market and force them to purchase raw materials and products at inflated prices.
• Franchisees may be subject to severe restrictions on exit from the business, including a ban on opening competing organizations for a certain period or in a certain territory.
• Franchisees rarely have influence over centralized marketing and advertising, but they may be forced to pay for centralized marketing and advertising campaigns. Thus, their funds may not be used in their best interests.

Notable franchise companies

There are many companies that provide turnkey business. At the same time, it should be noted that the name “franchisor company” does not mean that the company offers all its capacities for franchising, it can also have a certain number of objects in its “personal” property.

Notes

Sources

Growth strategy"

• Steven Spinelli Jr., Robert M. Rosenberg, Sue Burley Franchising = Franchising: Pathway to Wealth Creation. - M .: "Williams", 2006. - S. 384. - ISBN 0-13-009717-9

see also

Links

Civil law contracts
Transaction Invalidity of the transaction Agreement Offer Acceptance Quasi-contract
for the transfer of property into the property	purchase and sale (retail supply supply for state and municipal needs contracting energy supply sale of real estate sale of an enterprise) exchange of donation of rent (permanent life maintenance with a dependent) privatization of housing
for the transfer of property for use	lease (vehicles enterprise buildings and structures rental leasing) rental housing loans
for the performance of work	contract (domestic construction for the performance of design and survey work for the performance of work for state and municipal needs) participation in shared construction R&D
on the provision of services	actual paid provision of storage services transportation (chartering) of a transport expedition trust management of property legal agency commission orders financial

Aspiring entrepreneurs sometimes do not know or do not fully understand some of the terms that are used in the field of business. Frequently asked questions are related concepts such as franchising and franchise, and the definition of the difference between them.

The growing popularity of such a form of business organization as franchising requires a thorough study of all its features. What are the advantages of this system, are there any disadvantages, and why is it beneficial to use a franchise in the small business sector?

Definition of concepts and their difference

Franchise is translated from French as a benefit and means a certain set of documents and rights to use business elements. These elements can be:

• know-how and technology;
• business practices;
• trademarks, brands, logos;
• brands;
• business models;
• software, etc.

In fact, this is a “rent” of a certain brand or trademark, the acquisition of the right to use all its developments, technologies, reputation for personal benefit in the form of profit. - this is the process of buying a franchise, a certain agreement between the parties. Simply put, a franchise is an object of franchising. The parties to this agreement are the franchisor and the franchisee. The first is the one who sells the franchise, the second is the one who buys it.

The contract also stipulates the payment of the cost of the franchise. It is carried out in two forms:

• lump-sum payment - a one-time payment of the cost of the franchise;
• royalties - payment of % of the profits received in the process of using the franchise or the payment of a fixed payment for a certain period.

A businessman assumes certain obligations:

• produce products in compliance with the requirements for its quality and applied technologies;
• carry out activities in a strictly established place according to the planned scheme;
• use the franchisor's trademark.

What is a franchise business? An expert in the field gives the answer in a video.

History of occurrence

The history of franchising takes its toll more than a century and a half ago, in 1851 Its founder is the owner of a large company that produces sewing machines - Isaac Singer. It was he who first began to sell to independent firms the right to sell, service and repair their products throughout the United States. Thus, Singer not only distributed his product over a large area without any effort, but also provided after-sales service for it.

The next company is General Motors. Its dealers sold cars only of this company. By making a financial contribution to the business, dealers were interested in maintaining the reputation of General Motors and providing quality service when selling its products.

After a successful start, it quickly spread to other large companies. Producers of popular drinks Coca Cola and Pepsi approached it this way: they produced the syrup at the main plant, then distributed it to the franchisee's factories, where the drink acquired the final form of the product and then entered the stores.

Since the beginning of the 20th century, large manufacturers have begun to create and sell their goods to franchisees for its subsequent sale. The seller provided small sellers with discounts and the opportunity to use the trademark. This way of selling goods exists in modern conditions.

After that (30s of the 20th century), franchising spread to the oil industry, namely: gas stations began to be leased to small local entrepreneurs.

In 1945 businessmen confectioners Baskin and Robbins began to sell some of the new cafes of their rapidly growing chain under the terms of using their trademark to outside entrepreneurs. The McDonald brothers achieved great success in the field of franchising. Their fast food restaurants, which opened in the 50s. of the last century, are still very popular and have more than 30 thousand establishments around the world.

Currently Franchising is one of the most popular and progressive forms of doing business. and is widely distributed both in the West and in Russia.

Advantages

Running a business through franchising has both positives and negatives. Such a system is most suitable for aspiring entrepreneurs who are going to start their own business, but are not confident in their abilities. A franchise provides an opportunity to get your own ready-made business, manage it and gain experience in the business field. In addition, there are the following benefits of franchising.

recognition brand. By franchising, you are essentially buying an established business that customers know, recognize, and often love. No need to spend money on marketing, advertising, technological or design development.

Minimum risks. The probability of the collapse of a large company is much less than a new, unknown enterprise.

Feeling support. Franchisers are interested in maintaining and improving the image of their company, and therefore usually provide assistance to subsidiaries. Consultations, advice on doing business, training in the right management decisions - this is not the whole list of information services that a franchisee can receive.

You can choose industry of interest to you and study its performance indicators before starting your own business. Before you spend your money, you will know exactly how soon the investment will pay off and how much the product will be in demand in the market.

Low level of competition. Each franchisee receives its own territory in which to conduct and develop business. There will definitely not be competitors who could have the same franchise in this territory.

Flaws

You cannot use your ideas or innovations to run a business and must follow a clearly prescribed pattern. Such a business destroys fresh ideas and does not allow the enterprise to develop in a new direction.

Enough high price franchises. To buy it, you will need a lot of money, and it is not known when they will pay off.

Inflexible selection system suppliers. Often, franchisees are forced to purchase raw materials and materials from those suppliers appointed by the franchisor. The terms of such transactions are not always favorable.

Narrow scope of activity. By purchasing a franchise and everything that comes with it (brand, trademark, etc.), you also undertake to conduct your business in the direction indicated by the franchisor, without the right to change anything.

For failure to comply with such stringent requirements, substantial fines or even deprivation of the franchise are provided.

The risks that are the parent company may still go bankrupt. Or draw up a franchise agreement in such a way that you will not receive any benefit from this transaction. So, it is necessary to approach the conclusion of the contract especially carefully, involve experienced and competent lawyers in the case and carefully study the conditions.

Franchise agreement - what is it?

In Russian law, franchising is the name of the commercial concession. This term in its meaning fully corresponds to franchising and their definitions are identical. This one consists of several items:

1. The subject of the contract is, in fact, those rights and benefits that are sold to the franchisor.
2. Parties to the agreement (copyright holder - business owner, user - franchise buyer).
3. The form of the contract (necessarily written, registration with the relevant service is also required).
4. Remuneration (royalty) - its amount and method of deduction.
5. Rights and obligations of the parties (both the copyright holder and the user).
6. Restrictions on the rights of the parties.
7. Contract time.
8. Amendment of the contract (in which cases it is possible to change its terms).
9. Termination of the contract (at the end of the term or at the request of one of the parties).
10. Responsibility (forfeits and fines for violation of the terms of the contract).

Franchising Examples

For better clarity, we can consider examples of successful sale of franchises of large companies in certain industries.

One of the most prominent representatives of franchising on a global level is the company Ray Kroc's idea to sell company franchises in all cities of America has led to the fact that at the moment the restaurant chain covers more than 30,000 establishments, and its owner has become a billionaire. Now almost every country in the world has at least one McDonald's restaurant, and those who wish to acquire a franchise are subject to rather high requirements.

Another famous example of success is the franchising company, one of McDonald's main competitors. She uses the same scheme - selling the rights to the brand, products, trademark and providing full instructions for doing business.

Among automobile companies, the brightest representatives are the mentioned General Motors and Ford who use a franchised dealer system to distribute their vehicles to customers.

The clothing chain does not invest in advertising or marketing, but in opening new points of sale. Thanks to this, the network has 1.5 thousand stores and the brand is recognizable in many countries of the world.

Franchising, despite having certain disadvantages, is an effective form of business organization, especially at the initial level, for entrepreneurs without much work experience or innovative schemes. Such a system allows you to reduce risks, get a recognizable brand and save a lot of effort and money on business promotion.