Master franchise agreement is different from a franchise agreement. After signing a master franchise agreement, an investor has the right to operate, sell and service franchise units in a defined territory using a form of franchise agreement approved by t
WHAT’S common between Quest Retail, Yum Brands and Jubilant Foodworks? The all are master franchisees (MFs)/ area developers of renowned international brands like The Body Shop, Pizza Hut, Domino's, Dunkin Donuts, etc. Now these global brands smell success via the master franchise route in all sectors like F&B, Fashion, Specialty Retail, B2B, Services industry, etc.
Replicating the success strategies of international brands, Indian brands too are following suit for achieving horizontal growth. In India, the trend of quicker expansion of the franchise network via multi-unit franchisees is fast catching up as more franchisors are seeing benefits in developing a certain targeted area than opening a single-unit. More and more franchisees are joining the bandwagon to speed up profits.
Though the terminologies are different, the business model is nearly the same. Whether it's area developers, master franchisees, regional developers, development agents or multi-unit franchisees, they all are investors who have the right to develop a specific geographic territory.
Why does a franchisor prefer a master franchisee?
The franchisor grants an entity the right to sell and support franchises on its behalf within a defined territory. To compensate a master franchisee for his efforts, the franchisor typically shares all franchise fees and royalties collected from individual franchises sold by the master franchisee. The split of fees between the franchisor and the master franchisee is often established depending upon the degree to which a master franchisee is engaged in providing direct support to individual franchisees within its territory. Following are the reasons why a brand should master franchise?
Very limited monetary involvement of the company: The master franchisee invests all the money to support the franchise network which puts the onus of efficient business operations on the master franchisee.
Efficient way of developing large territories: It is ideal and a very widely followed strategy to venture into new markets through a master franchisee. It can be attributed to the reasons like the master franchisee will bring in high local knowledge about the targeted market and will have a higher grip on the market than the company itself
Sales role overtaken by the master franchisee (local partner): The master franchisee will then serve as the local partner as well as the brand representative in that particular territory, because of which he takes more charge of sales role independently.
Lesser time required to start operations: Due to the high understanding of the master franchisee, the company doesn't need to relocate its key members to new territories; thus less time required for starting operations.
Though lesser royalties, easier collection process: Though the franchisor shares revenues with third party, which reduces its royalty revenues, it definitely makes the collection cycle easier.
Adulteration of IP/ technology/ design in the JV case: The JV might cause the loss of IP/ technology/ design of the company by the local partner. Thus, to measure the same it is ideal for the company to enter through master franchise.
Why should an investor prefer master franchise?
According to Tony Fitzpatrick, Managing Partner with Franchise Your Business: “Buying a master franchise is potentially a good idea for someone who is an experienced manager with sales and marketing skills and who has run a multi-unit business in the past. He would be building an asset which can fetch a substantial price when he comes to sell.” Let's delve into the detail why an investor should prefer investing via the master franchise route.
Financial leverage & prestige: The status of owning a master franchise and handling a territory can offer great satisfaction and financial leverage.
Very few customers: Master franchisees have to directly deal with their own franchisees, the ones they have sold individual units to.
Autonomy: A master franchise allows investors much more freedom unlike a unit franchise. They don't carry the burden of running a unit or multiple units, but they still receive a portion of their franchisee's gross sales. Moreover, a master franchisee acts like a coach.
Share a larger pie: Start small and enjoy quick expansion.
No experience needed: In most master franchise opportunities, the investor receives specific industry training and ongoing support.
If you are also in the queue for expanding your business in some other territory or are a potential master franchisee then flip through the ensuing pages of our ‘On the Cover’ section as we have categorically handpicked opportunities for potential master franchisees.
TFW suggests potential master franchisees to have a SMOF analysis for their brands.
SMOF analysis for master franchisee reach
Strategic fit: Target the most developed markets with high per capita income and more keenness towards the targeted products
Phase 1: Strategic locations metro cities only
Phase 2: Visibility and penetration, boom towns, niche cities, etc
Marketing fit: Marketing is the most expensive channel wherein the money has to flow in continuously.
Operational fit: Take note of what is the minimum monthly sale required to make the showrooms profitable.
Financial fit: The phase wise approach is critical to the business for the financial feasibility of the proposed roll out.