Business Opportunities in Franchising

By Ruth Manimtim-Floresca

There are people who want to put up a business but find it difficult to decide what kind of venture to go into. Here, with the help of Elizabeth “Yvette” Pardo-Orbeta, CFE, President of the Philippine Franchise Association and Chairman of Wendy’s Philippines, we provide our readers with information about franchising and why it may be a good choice for many starting entrepreneurs.

1. Please briefly define what franchising is.

   Franchising is a business system, which involves one party (the franchisor) granting another (the franchisee) the right to use its trademark. There are two types of franchising formats:

   • Product franchising

     – where the franchisor licenses its trademark and logo to the franchisees but typically does not provide them with an entire system for running their business. The industries which use this type of franchising are soft drink distributors, automobile dealers and gas stations. This is now popularly known as dealership or distributorship in the country;

   • Business format franchising

     – or the granting of a license by the franchisor to the franchisee, allowing the latter to use the trade mark/trade name of the franchisor and to make use of an entire package, comprising all the elements necessary to run the business with continual assistance. This type of franchising has come to be one associated with the term ‘franchising’.

2. What are the advantages of franchising for franchisees?

   Franchising uses a proven system which protects the franchisee from the ‘trial-and-error’ phase associated with most start-ups. It is a way to be your own boss and uses a proven system which protects the franchisee. Franchising has a higher success rate (up to 90%) compared with traditional start-ups. It is business made easy. You need not have a business degree to be a franchisee and you get continuous support from the franchisor. In addition, strong brand recognition ensures instant customers.

3. What are the disadvantages of franchising for franchisees?

   A major concern for many is that they find franchising too restricting since one has to follow the conditions set by the franchise agreement and one has to operate the business as set by the franchise system operations manual. This lack of flexibility may hamper the franchisee from responding to fluctuating market situations. The commitment to pay royalties and advertising fees may also be disagreeable to would-be franchisees. Moreover, supplies must be acquired from authorized suppliers, which may include the franchisor (but this is necessary to maintain standards). The profitability of your business may be affected by the actions of rogue franchisees or bad business decisions by the franchisor.

4. What are the qualities of a good franchise business?

   If you have a business that you would like to franchise, make sure you make a self assessment if your business is franchise able. We, in PFA, define franchising as the replication of a successful business. This means that the foremost question you should ask yourself in your self-assessment is, “Is my business successful?” If you intend to franchise your failing business,then you will just be replicating a failure. Your business’ success, therefore, is a strong indication that its duplicates will become successful, too. Another criterion is a solid track record. That is why PFA members have to have achieved the following minimum requirements before they can become full-fledged members: have 3 company-owned outlets; have 3 franchise outlets; and have operated for at least 3 years.

   You may get a complete self-assessment quiz, for free, at the websites of franchise consultants like Francorp.

   If you think that you have what it takes to be a franchisor, you may join a trade exhibit or a franchise show to test the market. We at PFA, as part of our advocacy, have an incubation centre during our annual franchise show where emerging franchises and highly franchise-able concepts are given the opportunity to exhibit their goods and/or services to test the market.

   When you are already a franchisor, be sure to join a franchise association that can help you and assist you in your growth.

5. What makes a franchise association?

   It is the singular voice of the franchise sector; therefore, it must seek to represent the entire sector – from the smallest to the biggest, both local and foreign. It should promote and protect franchising and should ensure that franchising contributes to economic development and nation building through technology and skills transfer, enterprise development, and job creation. A franchise association should also cultivate international relations with national franchise associations all over the world for networking and sharing of knowledge and best practices. It should have a code of ethics to protect the reputation of franchising. It should provide information, resources, networking opportunities, and advancement programs to assist members and other businesses that are associated with franchising.

6. Can you share with us what are currently the top franchise brands?

   According to the country report of the Philippines during the latest WFC meeting in Mexico, these are the top franchise brands in the country: Jollibee, Seaoil, Chowking, McDonald’s, and 7-Eleven. The top homegrown franchises are Jollibee, Seaoil, Chowking, Goldilocks, and Red Ribbon while the top foreign franchises are McDonald’s, 7-Eleven, Pizza Hut, Mini Stop, Starbucks, and Dunkin Donuts.

7. How would you know if you are fit to be a franchisee?

   A franchisee must be the executive type. You must be able to execute the letter of the franchise operations manual with a clear understanding of its spirit. You must be a good manager, a good follower, a stickler for rules.

8. What are the things/factors to consider before buying a franchise?

   If you want to become a franchisee be sure to do your homework before investing on a franchise by doing the following: Check the background of the franchisor; inquire of the total investment fee; have the franchise agreement examined by a lawyer; and talk to the franchisees of the franchisor. Be forewarned if the franchisor offers the following because these are warning signs of a franchise scam: Get-rich-quick scheme; sign-up-today gimmick; and no franchise fee claim.

The Philippine Franchise Association (PFA) was founded in 1995 by industry leaders to grow the franchise sector. The founders, led by founding president and now chairman emeritus Samie Lim, believed that franchising can be a powerful tool for economic development because of the multiplier effect of franchising.

At the founding of PFA, there were less than a hundred franchises in the Philippines; most of which were large or foreign companies. The PFA founders thought that by introducing franchising to micro, small and medium enterprises (MSMEs), its effect on the economy would be more pronounced. True enough, there are now more than 1,300 franchise brands in the Philippines – 66% are home grown and 34% are foreign. Franchise sales account for 3% of retail sales in the late 90s. Today, franchise sales account for 30% of total retail sales. With regard to PFA membership, 63% are MSMEs, while 37% are large corporations.

Last year, PFA hosted the meetings of the World Franchise Council (WFC) and Asia Pacific Franchise Confederation (APFC), which was held back to back with the holding of Franchise Asia 2011. It featured the International Franchise Conference and the International Franchise Expo, as well as franchise and other educational seminars. The Conference brought in international speakers and gathered 1,000 participants. The Expo, meanwhile, attracted more than 50,000 trade visitors.

This will be replicated this year with the holding of Franchise Asia Philippines 2012 on July 23-28, 2012 at the SMX Convention Centre.