When you ask Filipinos for ideas in opening up a business, franchising will surely be among the top 3 options they will give. The allure of franchising in the country is really strong, as can be seen in foodcarts that sprout here and there, quickly filling up empty spaces in malls, sidewalks and train stations.
Like anything in life, there are pro’s and con’s when it comes to franchising. A quick rundown of some points from both sides are as follows:
Brand recall. Of course the usual franchises are those established brands which by this time have name recall and have regular following from consumers. To borrow some marketing concepts, they are usually the market leaders on their segments, the top-of-mind names, the mature known brands. When you say fast food, you think of ______. When you say siomai or milktea, you think of ______ and _____.
Promotion and marketing. Related to brand recall is promotion and marketing. Since in franchising, you are using a familiar name, what they do in terms of advertisements or campaigns or promos will benefit your store. Should they launch a TV ad, a Facebook ad or in print, your store wherever it may be located may benefit from it.
Expertise or experience. Juan can say they also have the expertise and experience on their field. They know the market better, what clicks, what doesn’t in terms of products, pricing, packaging etc. They are very familiar (supposedly) with the supply chain supporting the business, the ins and outs from securing permits and starting, to assessing whether a location is a go or no-go, where to get your supplies, inventory, etc. up to hiring and daily operational concerns. Part of availing a franchise is getting these supports and know-how from the franchisor. When you franchise, you should expect operational support.
Costs. Getting a franchise will cost Juan quite a sum of money especially for those just getting started. This is the price to pay for using a well-established brand name. It’s like, if you want to be affiliated and associated with a well-known brand like us, then you have to pay. Otherwise, you come up with your own since we own this brand, then we will compete against you. Actually, if you have the business acumen and know-how, there’s nothing wrong with coming up with your own start-up because if you think about it, these established businesses were once start-ups too, before they hit it big.
If Juan really computes for it, the sum to be paid is too much for the initial inventory and equipment, the training, uniforms, marketing paraphernalia, physical food cart or booth, etc. Why? Because part of the payment really goes to royalties, whether they declare it or not. Part of the amount you pay goes to them allowing you to use their name and logo. Hey, nothing wrong with this, it’s all business.
Given this, the return on investment might take a little longer compared to when you just started a business on your own (assuming capital is smaller). But Juan cannot discount the fact that sales might be more brisk if your name is more famous and familiar, since the consumers already know you, compared to a start-up in the sidewalk.
One way to minimize the cost and the risk in franchising is via crowdfunding. So if you want to consider getting into a franchise with many investors to share the upfront costs, you might want to consider PhilCrowd. Lesser risks, but of course, you also share the income.
Support stops here. Don’t think that after you’ve paid half a million, the franchised business will just run on its own. Yes, there will be support from the franchisor but it has its limits. The daily operations’ nitty-gritty, the manpower issues, rent, utilities and bills to pay, the new inventory you have to buy, and making sure the business is profitable as soon as possible still rests on your shoulders. If you think about it, these issues will arise in any business you operate, whether franchised or not. But still, in a franchised business, you paid for experience and name and support, but still you have to learn on your own through experience. So it’s up to you to choose whether you will pay a sort of seasoned mentor, or run your own business and just find a cheaper mentor.
Lack of customization. Depends on the franchisor whether they are strict or not, but chances are, you have to comply with the franchisor’s rules and standards because it’s their name on the line. If you want to sell extra items on your booth that are not in their product line, you can’t do it. If you want to make some changes on the look and feel of the place, you will need their permission, maybe it’s a yes or maybe a no. Franchisors would want to retain a semblance of uniformity and consistency so if you want to do things on your own, then you might find this limiting.
Risks. The business risks will not be eliminated just because it’s a franchised one. Not because it is a established name doesn’t mean it is a surefire success. Even big businesses commit mistakes, wrong location, wrong estimates of foot traffic and sales volume, too expensive rent, etc. It’s just that the amount you can lose can be bigger if you franchised a business, compared to you just starting on your own.
Likewise, if you suddenly realize that you are not meant to run businesses because you cannot stand the headaches and sleepless weekends it can bring, then it might be easier to shutdown a start-up where you just spent a smaller amount, than terminating that medium-term franchise agreement. Others will give options though in terms of relocation, transfer of franchise etc. since the franchise agreements usually last for 3 to 5 years, but it will be best to check.
Not all franchises are created equal, and it is not meant for everybody. Risks might be minimized if you seek help and affiliation with known brands, but it does not eliminate the risks 100%.
Likewise, Juan should be careful in choosing the right franchise because nowadays, even small-time brands and start-ups already offer franchising (too early in my opinion) even if they have not made a name for themselves yet. Lastly, running a business will entail hardwork, perseverance and commitment so you have to be ready for it. But for the entrepreneurial Pinoys, they see it as a quicker way to a richer life, rather than staying an employee until old age. Can you relate to this? Well only you can answer that.
To end, I am re-blogging two Facebook posts from The Global Filipino Investors for the benefit of those who might have missed it, as well as for our email subscribers. Here they provided infographics on how much the usual and more famous franchises cost so check these out.
There will be an upcoming TGFI FinLit Summit on April 7 and 8 in SMX Convention Center. Click here for details: TGFI FinLit Summit
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Photos from The Global Filipino Investors.