When you hear the word ‘franchise’, you can probably think of many well-known brands in your town or suburb alone. That’s not surprising, since there are over 1,100 franchised brands in Australia, with over 80,000 businesses running as franchises.
The business model has seen staggering growth since the first franchises started here in the early 1970s. Now it seems that virtually every product and service sector has franchises available.
But what exactly does the term ‘franchising’ mean in business?
What is franchising in business?
The International Franchise Association defines a franchising business as a “continuing relationship in which the franchisor provides a licensed privilege to do business, plus assistance in organising training, merchandising and management in return for a consideration from the franchisee”.
Say what? What does that mean in plain English?
All that definition means is that a franchise is a way of doing business. Basically, it’s a trademarked business formula that one company (the franchisor) owns and offers for sale to others (franchisees) so they can run their own small businesses for a defined period of time.
In a nutshell, a franchisee runs their own small business but uses the branding, offerings, systems and processes of the franchisor. So, as a franchisee, you get access to all the hard-earned knowledge and experience your franchisor has built up over the years.
That includes their market-tested products or services, their proven pricing, their established marketing techniques and their existing customer base. It also includes all of your franchisor’s brand materials like logos, slogans, signage and designs.
Why consider a franchise business?
There are many advantages to buying a franchise compared with starting your own independent business. Just briefly, these include:
- Brand recognition: People already know and trust the brand you’re buying into. That gives you access to an existing pool of both customers who want to buy from you, and employees who want to work with you.
- Higher success rate: Your franchisor has already done the hard work of figuring out what products, services and systems work, as well as how to price and market them. You just have to follow their existing formulas to achieve success.
- Easier finance: Investors know that franchise businesses have a higher success rate, so they may be more likely to lend you the money you need to get started.
- Collective buying power: Your franchisor will usually have already negotiated the best deals with suppliers and distributors, which means you can take advantage of lower costs.
- Support from franchisor: Professional franchisors give you extensive training before you start your business, and then ongoing support while you’re operating. They help you to be successful, even if you’ve never run a business before.
Franchising models available in Australia
Australian franchises generally use one of four business models:
- Manufacturer-retailer: This is where a retailer (franchisee) can sell the franchisor’s product straight to the public. It’s commonly seen in new car dealerships, for example.
- Manufacturer-wholesaler: This is where a franchisee gets a licence to manufacture and distribute the franchisor’s product. Soft drink companies often use this model to bottle their products.
- Wholesaler-retailer: In this model, a franchisee retailer buys products from a wholesale franchisor and then sells them at retail. You’ll see this type of franchise agreement in action in places like your local hardware or automotive parts store.
- Retailer-retailer: This is the most common model, and is what probably springs to mind when you think of franchising. It’s where the franchisor markets its products or services through a network of franchisees, each using a common name and a standard set of systems and processes. This model is used in all kinds of sectors, from quick service restaurants to lawn maintenance, and is also called ‘business format franchising’.
Chicken Treat: a great example of the retailer-retailer model
Like many other quick service restaurant retailers, Chicken Treat uses a retailer-retailer – aka ‘business format franchising’ – model.
What sets this model apart is that franchisees must follow the guidelines their franchisor has set down when they’re running their business. These will include restrictions on aspects like:
- where the franchise can be located
- the image of the business
- the quality of the goods and services
- how the business is operated.
These restrictions don’t just exist because the franchisor wants them to. Rather, they’re necessary to protect the brand integrity of the franchise and ensure its continued success. They guarantee that the franchise’s customers get a uniform, consistent experience, no matter which store they visit.
Do your franchising business research
Buying a franchise is a significant monetary investment, so it’s not a decision to rush into lightly.
Franchising is also regulated by the Franchising Code of Conduct, which means that both you and the franchisor will have legal obligations. These include complying with various laws, such as the Fair Work Act, tax legislation and licensing schemes.
Additionally, you also need to think about whether a franchising business will suit your lifestyle and business goals.
Want to research Chicken Treat as a franchise business?
Leisha from our Franchising Team would be happy to help. Get in touch today.
0408 927 750