franchising aspects Dec, 17 2010

Securing Success in Refranchising

A proven strategy that ensures profit margin, brand identity, and optimum success is refranchising. However to recognise the leverages of refranchising an in-depth understanding of the concept is essential. Read on to explore the benefits

By Ramanjit Kaur
Feature Writer
Securing Success in Refranchising

The concept of selling an operational company owned outlet to aspiring franchisees is termed as ‘Refranchising’. Retrofranchising, another name for refranchising provides an opportunity to the existing franchisees to buy a company owned outlets. Thus, refranchising not just motivates the aspiring entrepreneurs to take up the franchise but also encourages the existing franchisees expand by owning company owned outlets from the franchisor. Refranchising is also beneficial for the staff running the company owned outlets as they do not have any risk of losing their jobs with the change in the ownership of the outlet. The concept increases the profit margin by generating more franchise fees and royalties without spending money on the management of the various company owned outlets. If you are an entrepreneur with a wide network of company owned outlets and you are facing problems in efficiently running it, then refranchising can be ultimate solution to all your problems. It not only helps in resolving the managerial problems but simultaneously raises the sales growth of the company as well.

Need for refranchising

Undoubtedly, refranchising is a safer option for both the parties (franchisor and franchisees) to attain franchise success. It is gaining grounds in India with companies like Woodland successfully following the model and reciprocating success across the nation and worldwide. Harkirat Singh, MD, Woodland says, “We open and operate stores of our own for a particular time span and then sell it to the potential franchisees with all the employees that are working for that particular outlet. This way we ensure the proper working of the outlets simultaneously maintaining the brand image and brand standards.”

A franchisor can consider refranchising under various circumstances 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 

However, Singh elaborates, “We do sell our already well run operations and positive cash flow outlets to the promising franchisees but we have the arrangement that in case if the franchisee fails to maintain the standards of the outlet, then we take over the shop again.” Similarly, Tony White, Regional General Manager, Gloria Jeans Coffees International says, “It is indeed a good way to retain and sustain the image and standards of the brand. Beside this, it also ensures profitability.”

Refranchising strategy

Refranchising has proved to be a blessing for both the franchisor and the franchisees. But when adopting the refranchising model, a franchisor is recommended to develop a strategy keeping in mind the following things: 

  • Profits concern: Refranchising is not a fixed strategy rather it can be molded to improve the functioning of the troubled outlets. 
  • Reasonable rating: Over-rating of the company owned outlets should be avoided. The value of the company owned outlets should be reasonable as per the worth of the outlet. 
  • Realistic approach: Information regarding the profitability of the company owned should not be over exaggerated. 
  • Sensible selection of franchisees: Ample amount of time should be invested in selecting the potential franchisees for the company owned outlets to gain success. As Singh says, “One has to be very selective as we are supposed to open the outlets, not to close them.”   

Word of caution

The franchisor while opting for refranchising should carefully adopt a strategic approach to avoid the imprudent reactions of the existing franchisees. They might be unhappy of not getting the operational stores that the other aspirant will get through refranchising. Therefore, a franchisor is always advised to deliberately structure to fit in his long term plan.

To summarise, refranchising offers win-win solution both for the franchisors and franchisees. Franchisees get to buy a readymade business for some fixed value while on the other hand, franchisors generate easy returns while securing its brand image.

Need for Refranchising

Undoubtedly, refranchising is a safer option for both the parties (franchisor and franchisees) to attain franchise success. It is gaining grounds in India with companies like Woodland successfully following the model and reciprocating success across the nation and worldwide. Harkirat Singh, MD, Woodland says, “We open and operate stores of our own for a particular time span and then sell it to the potential franchisees with all the employees that are working for that particular outlet. This way we ensure the proper working of the outlets simultaneously maintaining the brand image and brand standards.”

A franchisor can consider refranchising under various circumstances 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 

However, Singh elaborates, “We do sell our already well run operations and positive cash flow outlets to the promising franchisees but we have the arrangement that in case if the franchisee fails to maintain the standards of the outlet, then we take over the shop again.” Similarly, Tony White, Regional General Manager, Gloria Jeans Coffees International says, “It is indeed a good way to retain and sustain the image and standards of the brand. Beside this, it also ensures profitability.”

Refranchising strategy

Refranchising has proved to be a blessing for both the franchisor and the franchisees. But when adopting the refranchising model, a franchisor is recommended to develop a strategy keeping in mind the following things: 

  • Profits concern: Refranchising is not a fixed strategy rather it can be molded to improve the functioning of the troubled outlets.
  • Reasonable rating: Over-rating of the company owned outlets should be avoided. The value of the company owned outlets should be reasonable as per the worth of the outlet.
  • Realistic approach: Information regarding the profitability of the company owned should not be over exaggerated. 
  • Sensible selection of franchisees: Ample amount of time should be invested in selecting the potential franchisees for the company owned outlets to gain success. As Singh says, “One has to be very selective as we are supposed to open the outlets, not to close them.”

Word of caution

The franchisor while opting for refranchising should carefully adopt a strategic approach to avoid the imprudent reactions of the existing franchisees. They might be unhappy of not getting the operational stores that the other aspirant will get through refranchising. Therefore, a franchisor is always advised to deliberately structure to fit in his long term plan.

To summarise, refranchising offers win-win solution both for the franchisors and franchisees. Franchisees get to buy a readymade business for some fixed value while on the other hand, franchisors generate easy returns while securing its brand image.

Related: An insight into Franchise Agreement

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