Hey everyone,
my name is Navdeep, and in this video, we're gonna talk about Franchisee business model.
So let's dive in. Now franchise is a type of business that is operated by an individual known as franchisee.
And he's using the trademark or branding and the business model of a franchisor.
So let's understand difference between a franchise and a restaurant.
And then we will understand the difference between a franchise and a franchisor.
So this is the basic difference between a franchise or let's say you wanted to open your own restaurant.
So if you look at cost.
Let me take this marker.
So if you look at the cost, the initial cost of franchise is less because you just need to take a
license of that specific franchise and you do not have to setup any of these process by yourself.
If you look at the setup cost of a restaurant, then you have to buy a piece of property and then you
have to set up all the different process.
You have to hire employees, so you have a lot more effort when compared with the franchise.
Obviously, you have to pay a franchise fees and expenses might go beyond your limit, but you may
not have a hassle of setting up every single process.
If you look at the process, these franchise have these standardized process, but in your own restaurant,
you have to set up every single process from deciding the menu of your restaurant to hiring different
chef or people to manage the operation.
You have to set up every single process by yourself.
If you look at brand, franchise already have a well recognized brand.
But in your own restaurant, you have to build your brand by yourself from scratch.
If you look at the business model, the business model of franchise is already proven.
That means people are spending their money in that specific product. In your own restaurant
You have to test different cuisine or different product in your restaurant, and then you will find
a specific product that is selling or people are purchasing that product or they are eating that specific
food in your restaurant.
If you look at the failure, the chances of failure in a franchise is very less.
But if you open your own restaurant, obviously you always have some chances of failure because you
have to test different product.
You have to built every single process.
You have to hire best people who can cook the cuisine, the people, the way people wanted to eat.
Now, let's understand the difference between a franchise and a franchisor. Now franchisee is someone who
operate the business using the trademark license that they have taken from the franchisor and franchisor is
someone who owns the trademark and the business model.
Now, in this case, a franchisor can be McDonald's or Burger King or any any restaurant chain while
a franchisee can be you or me.
Anyone who owns that specific place or restaurant, among other 10,000 restaurants that specific franchisor have.
But the main role of franchisee is to manage your day-to-day operation.
They will also motivate, recruit people because obviously they have to maintain every single process
in their own restaurant.
And these franchise will always make sure that they are meeting the quality standards that they have
set.
So obviously, if you eat in McDonald's anywhere in a country, you will find the exact same taste
and that is happening because of these quality standards that these franchisor maintain for all these
different franchise.
Then you also have to support the local community.
So normally I've seen franchisee organizing these small events.
They also do small promotions on local level, and they also control the procurement.
So from raw material to the end operation, these franchisee maintain every single process.
If you look at the franchisor on the other side, these franchisor normally negotiate with supplier
in bulk quantity.
So let's say you have to procure the product in a very small quantity, but these franchisor will make
sure that you always have access to the best quality raw material from these different suppliers.
So they do bulk negotiation.
Now these franchisors also manage their leases, their property negotiation.
And apart from that, these franchisor are also provide marketing support, IT or legal operation,
or the HR support because these franchisor needs to maintain a brand value.
And obviously, if you wanted to, you wanted to build a very strong brand.
You have to do these marketing campaigns.
You have to make sure that you are fulfilling all the legal compliances in that specific country.
Also, these franchisor have a very certain set of process for doing recruitment and induction once
they have hired some people.
And finally, they grow their brand and awareness.
So all of the marketing campaigns that you have seen on Instagram or across different social media channels
or in your TV, all of these marketing campaigns or awareness are always done by these franchisor because
obviously, if they wanted to sell the license of their franchise,
at a higher price, they have to maintain a very good brand quality, trust and awareness.
And that's why all of their brand campaigns and loyalty part is taken care by the franchisor.
Although you have different types of franchise across different domain in retail management, but let's
say in this video, we will just talk about the fast food franchise.
Now, when we talk about the fast-food franchise, we have two different type of franchise.
We have Master franchise and Company-owned franchise. In this video,
Let's talk about the Master franchise.
As the name suggests, you have an international retailer or franchise who charges a royalty fees from
the franchisee who run the business locally in that specific country by opening the different outlet
under the franchisor's name.
So you have a international retailer.
Let me take the laser pointer, so you have international retailer on this side.
This international retailer will sell the franchise trademark to their master franchise, which is
located in that specific country.
And this master franchise will then open all of their soft franchise or retail store in that specific
country.
In return of that, this master franchise will pay a royalty fee or a franchise fee to the international
retailer.
And this is the business model which is followed by brands like McDonald's or Domino's.
So they have a master franchise located in the United States because obviously these two brands belong
to US and they have a country specific partner, and they usually charge the franchise fees or the
royalty fees from that specific partner.
And those partner can open as many restaurant or as many franchise as they want.
On the other side, you have Company owned franchise.
That means these international franchise will establish their own office in that specific country,
and they will also help other franchise or property owners to establish their own restaurant.
So you can see that you have your international retailer, you have, they will establish their office
into that specific country, and then they even sell their own franchise to different people.
And they will also operate their own franchise with their own brand name because obviously they are
present in that specific country, so you will operate your own franchise.
Then we have Company owned franchisee business model.
Now in this, your international franchise will have their own office in that specific country, and
they will operate all of their restaurant by themself.
Or they will also allow other people to run their restaurant under this franchise model.
So let's understand this with the help of this specific diagram.
So you have your international retailer over here and they will open their own office or establish their
own office in that specific country.
And they always have two option.
Either they can sell their trademark to some independent partner or people, and they will collect some
franchise fees from them, or they will open their own restaurant.
If they open their own restaurant, they will collect all of the revenue that they are generating.
On the other side.
If they sell the trademark to some franchise, they will generate a bit of revenue.
But on the other side, they do not have to manage the day-to-day operation.
And both of these people will then open different restaurant or retail stores or franchisee or.
And both of these people will open their own retail store or so-called restaurant. Now in company owned franchise
because we are establishing our office in that specific country and we are opening our own restaurant.
But imagine if you do not have that much amount of money or capital to open restaurant in that specific
country.
That's why you normally have joint venture.
So let's say, you know, a company, which is very famous in that specific country, or let's say
you have a big conglomerate of that specific country who wanted to do some partnership with your company
so that you can both open or run this specific food chain in that country. In Joint venture,
you can partner with a conglomerate of that specific country because they will provide you a access
to capital, and they will also give you operational support, and you can also split down the profit
based on the percentage of your joint venture.
So let's say if you have a joint venture of 50-50 percent, you have to split down your profit in the
same way.
And this is the specific diagram.
So you have a international retailer, you have a country specific who wanted to do partnership with you
and they will put some amount of capital and you will also put some amount of capital to enter that
specific country.
And finally, you do some joint venture so that you will start opening all of these different types
of restaurant in that specific country.
That's the typical example of joint venture.
So if you wanted to license all of your trademark or business model to some other company, then that's
the example of Master Franchise.
If you wanted to enter into a specific country by deploying your own capital that you have,
that's the example of a company owned franchise.
And if you do not have enough capital, but you will still wanted to enter a specific country and you
wanted to open all of those restaurant,
then you can look
for joint venture, where you have to find a local conglomerate who is having ample amount of cash and
who have some sort of expertise in helping you out in the processes or maybe managing workforce or any
of these.