Advisory May, 08 2015

How can you benefit from refranchising ?

Franchising, franchising & franchising, it’s become a fad among the Indian businessmen as there isn’t a better replicating business model than this. What next? Big conglomerates who have been following franchising since decades & further for boosting

By Ekta Sharma Verma, TFW Bureau
Sr. Sub-editor
How can you benefit from refranchising ?

Refranchising is a process when a brand starts franchising its company owned units for boosting income. For many companies it has proved to be a source of reduced overheads, new source of income and increased performance too. But refranchising is not a cup of tea for many.  We tell you a lot more on refranchising and how brands are moving ahead with this concept.

A franchisor may have many franchisees for his brand and he may prefer to operate many outlets by himself and not via franchisees. But when, the franchisor decides to sell all or several of the company owned units, it is refranchising (also known as going franchise). Recently, Oak Brook, Illinois, based McDonald’s said that it expects to refranchise 3,500 restaurants by the end of 2018. Earlier, the burger chain planned to sell at least 1,500 company-owned restaurants to franchisees by the end of 2016. Also, The Wendy’s Co. also said that it will sell 500 company-owned restaurants to franchisees by mid-2016 in an effort to reduce corporate ownership of restaurants.  However, refranchising has definitely worked for Burger King. Internationally, the Miami based brand sold many of its stores to the franchisees.

A franchisor can consider refranchising under various conditions such as:

Trouble in efficiently operating the network of company owned stores
Raising the profit margins or finances for growth
Franchised outlets (of similar brand) affecting the operation of company owned outlets

Putting his views on refranchising, Kavindra Mishra, CEO and MD, Pepe Jeans India says: “Refranchising works only and only if the partner who takes, knows about retail and has good knowledge and the brand has belief that he will do justice to it. There are very few franchisees in the country who can that way take it forward and there is a genuine need for such talent to be developed. For the brand it releases the capital and helps in liquidity and hence win-win situation for both the partners.”

Franchisees- Better operators

There are a lot many instances which show that when franchisees take over a company operated store, they give their best to keep it up to the standards maintained by the franchisor. This can be one more reason to refranchise. Subway also follows a 100 per cent franchise model. St. Louis based-bakery brand, Panera Bread Company is a perfect example for refranchising. Last month in a press release the brand stated that the company is making significant progress on its plan to refranchise 50 to 150 bakery-cafes. The Company has entered into letters of intent to refranchise 73 bakery cafes and is on track to reach its refranchising goal. During fiscal Q1 2015, the Company opened 11 new bakery-cafes and its franchisees opened 14 new bakery-cafes. As a result, there were 1,901 bakery-cafes open system-wide as of March 31, 2015. An e-mail sent to the company did not elicit any response.

On refranchising, Sudeesh Varma, Head - Green Gold Stores and Events comments: “Refranchising is more of an internal call since there are franchisors who would like to keep outlets managed by themselves to maintain the complete idea intact with the original concept at the same time to use the premise to test new products and services and to promote the brand and build brand value and prominence.”

Pallavi Rao Chaturvedi, Director, AISECT says: "Refranchising is good for those organisations who want to cut down on high operational expenditure while still bringing in steady but limited income. The downside is the risk of lower quality and loss of assets for the organisation.”

On refranchising benefits, Varma of Green Gold Stores comments: “Refranchising does help reduce the capital expenditure and reduce manpower and maintenance costs. Finally refranchising depends on time, plan, future investments and the company's course on future growth and diversification.”

On the other hand, Anupam Bansal, Executive Director, Liberty Group says: “Retail is going through a fast changing phase. As concerned to refranchising, it is always better to let a franchisee operate a store at a remote location rather than at a prime location. The franchisee can bring in benefits from such remote locations too and company can manage stores at major locations. Training has become very important in today’s time. Now, people don’t’ just want to earn money. They want to become a complete entrepreneur with values and knowledge. I can say, franchisee value is now known to the market.”

Tips to ponder

Decide step by step- Do not always think of selling off an underperforming outlet to a franchisee and expect him to run it profitably all of a sudden. Take step by step decisions and talk to the franchisee before re franchising. 

Franchisee point- Always first think how much the franchisee can pay for operating the store you want to refranchise. You might think it is more than the cost you had thought but always think from a franchisees’ perspective too, so that he remains satisfied and happy when he runs your brands store with a new challenge.

Help him hire the staff- A franchisee alone cannot run a store. He will need a proper staff, a person at the counter, chefs, helpers and much more. Understand that it is your brand too. Help the franchisee in staff hiring when you refranchise your outlet.

Pros and Cons- Always guide the franchisee about the positives and negatives of the location the store is positioned at. Make him aware of the competitors around and tricks to tackle them and yield lucrative profits in lesser time.
Handholding- Franchising is a brilliant trade technique. Do not leave your franchisee in between. Guide them till the moment they need your support. In refranchising, a franchisee might need much more from your side than just a store being sold and handed over to him. Be patient and advice him the same too.

Related: Franchisee: Analyse Franchise for Success

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