What’s a franchisee?
Franchisees are independent company owners who run third-party retail outlets. The franchisee now owns the right to utilize an existing business’s trademarks, affiliated brands, and proprietary information to promote and sell the same brand and meet the same standards.
In the U.S., franchises are very prevalent. Few blocks in most cities go without a franchise business. Famous franchise concepts include McDonald’s (NYSE: MCD), Subway, UPS, and H&R Block (NYSE: HRB).
Numerous sectors provide franchise business prospects.
When a firm wishes to gain market share or geographical presence at a low cost, it might franchise its product and brand. The original firm has the right to utilize its name and ideas in franchising. The franchisee buys the right to sell the franchisor’s products or services using its business model and brand.
The franchisee-franchisor relationship is advisory. The franchisor assists with hiring and training people, setting up shop, advertising, procuring supplies, and more.
Franchisees often pay the franchisor a beginning fee and a percentage of gross earnings in exchange for their advising role, intellectual property, and experience.
The franchisor first places the franchisee in a territory away from its other franchises to minimize competition.
Before buying a franchise, consider the pros and cons of investing in a successful firm.
Franchising is an excellent option for entrepreneurs with less business management expertise due to:
- Franchising can be cheaper than starting from scratch.
- The company has brand awareness, a supply structure, and a competent marketing strategy.
- Franchisees copy their franchisors’ business techniques.
- Franchisee success is the franchisor’s priority, and it will advise them.
Franchisees must follow the proven company model in location, furniture, goods, and décor. Franchisees need this to ensure quality across all brand-name sites.
The franchisee must advertise and market the business in its exclusive territory. However, the original establishment must authorize all marketing activities before dissemination.
The franchisee must sell only approved items and services from the original firm to maintain the brand name as the franchise manager.
Franchise Example: McDonald’s
McDonald’s, a fast-food giant, uses the franchise model to expand globally.
The McDonald brothers launched McDonald’s in San Bernardino in 1940. In 1955, their business partner Ray Kroc created the first McDonald’s System, Inc. franchise in Des Plaines, Illinois, a Chicago suburb. The brothers sold the firm to Kroc.
The company will have over 38,000 restaurants in 100 countries by 2023, with 93% owned by local businesspeople.
McDonald’s owns or rents franchisees’ land and facilities. The franchisee pays a share of seats, décor, and signage on the company-provided site as part of the contract.
McDonald’s requires franchise purchasers to have $500,000 in non-borrowed personal funds.
McDonald’s devotion to food quality is part of its famous success. Los Angeles and London Big Macs should and do have the same rate.
Franchisees benefit from McDonald’s brand equity and worldwide experience while making price and personnel decisions.
Do franchisees own businesses?
Franchisees own businesses. The owner can utilize franchise products. The franchisee must use only franchisor-approved items and services.
This restricts company owners’ freedom. McDonald’s franchisees can’t offer peanut butter and jelly sandwiches or hang non-McDonald’s pictures.
Are franchisees and franchisors alike?
No. The franchiser controls the assigned brand or business’s intellectual property, patents, and trademarks. A franchisee acquires the right to run a franchisor site.
Fire or remove a franchisee?
It is effectively firing a franchisee. Franchisors can fire licensed operators that breach the regulations. Those restrictions allow the franchisor to act fast if a franchisee runs a facility that violates health and safety standards, among other violations.
New franchise models are emerging. The basic McDonald’s model involves a company owner adopting a franchisor’s product range and merchandising.
New franchising models are emerging in services like home health care and tax preparation. Franchises for company distribution are growing. The dealer gains exclusive rights to sell a supplier’s goods in a specified area.
Franchises are appropriate for people who wish to purchase an established company concept rather than start one.
- A franchisee owns a retail chain-branded store.
- The franchisor charges the franchisee to sell its products and utilize its trademarks and intellectual expertise.
- Franchisees receive operational and marketing help from the franchisor.
- Franchisees must sell and uphold the parent company’s brand.