Advisory May, 30 2011

Strategic means of expansion

Best way to seek competitive advantage in franchising is through alternative strategies in terms of refranchising and conversion franchising. Big brands often utilise these strategies for rapid growth and maximum revenues. Explore!!

By Ramanjit Kaur
Feature Writer
Strategic means of expansion

The terms ‘Refranchising’ and ‘Conversion Franchising’ are considered as the best and secure way to expand and succeed in the franchise industry. In refranchising, the franchisor converts his/her company owned outlets into franchised outlets whereas in conversion franchising, an established businessman is offered the opportunity to convert his independent business into a franchised business. Many brands around the globe have started practicing these two modes of expansion over direct franchising as these helps in locking up the standards and brand image of the company.

As Harkirat Singh, MD, Woodland says, “We have seen that the franchising concept is successful in India only when the company is equally involved in the day-to-day operations of the franchise business. As majority of the franchisees are not expert retailers, so leaving everything on to them can be risky. We try to run all our stores whether franchised or company owned, so that the stores run on the set system and standards of the company even if the franchisee is not involved in the daily operations of the business.”

Apart from the assurance of the profitability of the franchise outlets, these modes also improve the profit margins in terms of franchise fees and royalties without spending money on the management of the various company owned outlets. This article will cover the various brands that are exercising these two strategies along with the pros and cons of them.

Opting for refranchising/conversion franchising?

  • Taking up the refranchising mode of business can prove to be a beneficial step for the franchisor in terms of:
  • Easy and trouble free management of the company owned outlets by selling them to the potential franchisees
  • Remakable effort to raise funds (in terms of franchise fee and royalties) and pay off debt (if any) selling off company-owned outlets to the aspiring franchisees
    Taking advantage of the skills, hard work and the entrepreneurial energy of franchisees, if franchisees have the tendency to be more attentive to the business operations and the profitability of the franchise as their hard earned money is at stake
  • Conversion franchising on the other hand is another way to incorporate the already established small business owners into the franchise league. It ensures the successful working of the business operations and smooth cash flow. This concept id beneficial in terms of:
  • Experienced new franchisees who need less training and support as compared to a new entrant in business
  • While for the franchisees, conversion franchising leverages them to take advantage of branding, which is a valuable asset to lead them to growth
  • Getting benefited from the dedicated marketing team of the franchisor who generates more leads through the use of proven marketing techniques. On the other hand, franchisor makes use of the local knowledge and already established networking of the franchisees

Must have for franchisor

Undoubtedly, both the models are lucrative for both the parties (franchisor and the franchisees) but when on the verge of getting started with these two modes of business, a franchisor must take into account:

  • The process that deliberately structured and well thought of so that it can fit into long term plans of the franchisor (of handling the various corporate and franchised outlets)
  • A strategic approach is necessary in order to avoid the disgruntled feeling of the existing franchisees for not getting the operational stores unlike the new entrants

Brands practicing refranchising and conversion franchising

Companies like Drishtee, Woodland, Yum! Brands and few more who are successfully expanding through these outstanding modes of expansion are inspiring many international and national brands to come forward and opt for refranchising and conversion franchising to get succeeded. To illustrate, here are the perfect examples of the brands who are actively involved in both these strategic means of expansion. Drishtee, an over 10 year old social enterprise has started its journey by pioneering and popularising the e-kiosk / telecentre model. The company was rechristened as Drishtee Development and Communication Ltd (DDCL) in 2000, which runs the services including Banking, Micro-finance, Health and Education. The company has forayed into conversion franchising in 2008 by launching rural retail points (RRPS) that has converted village shops selling fast moving consumer goods (FMCGs), like packaged food and hygiene products into Drishtee franchises. Over the years, Drishtee has facilitated and supported a network of over 14,000 rural enterprises to cater to the critical needs of the base of pyramid (rural population). At present, Drishtee has 5645 registered franchisees and now it is planning to expand in geographies like Uttar Pradesh, Assam, Bihar and Haryana till 2012.

Whereas Woodland is one brand which has come into being in the 80s and entered India in the early 90s through distributorship model. The company has started distributing goods through distributors, retailers which were having multi-brand stores. With time, the company launched its company owned stores where it could give the experience to the customers, about what Woodland actually stands for, so that they can experience the image it was selling. It has gone through the Indian retail market for about 20 years and it knows the ups and downs very well. Therefore, the company takes utmost care in the selection of the stores as well as how many stores to be opened.
Besides this, Yum! Brands, a fast food chain have adopted this model in US to convert the company owned outlets of its brands (KFC, Pizza Hut and Taco Bell) into franchised outlets.

In short, these two concepts verse well with the objectives of both the franchisor and the franchisees, and are thus, gaining huge success as a profitable business concept around the globe. Running a business all by your self is not an easy task. Avoid all pain of planning and preparing strategies for growth and get started with refranchising or conversion franchising to make the most of the experienced workforce.

Related: Explore External Funding Options

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