Franchising- the relationship between two market participants in the field of business at the conclusion of the contract. One party transfers to another participant the right to a type of activity with a developed project for payment.

Description in simple words

Information from Wikipedia

The origin of franchising

The concept of "franchising" originated in the twentieth century in the United States. Its initial function is to increase the sale of its goods. Later, franchising was used by independent wholesalers and retailers to increase and remain competitive in the market.

In the 1930s, oil companies began to use the franchise system to open car filling stations. Organizations that received a license sold the goods and services of the franchisor in a short time. This allowed large companies to stay afloat during the crisis in America.

In the middle of the century, franchising received rapid development under the policy of non-intervention of the authorities. The McDonald's brothers were among the first to achieve success.

Franchisor and Franchisee

Franchising is a kind of renting a brand or commercial designation. governed by an agreement between the recipient and the party providing the good or service.

A large enterprise concludes an agreement with small entrepreneurs on granting it the right to produce goods and sell them under the brand name famous company.

Franchisor- an organization that has issued a license or rights to use its brand or technology.

Relationship model

The franchisor enters into agreements with several organizations and creates an extensive network trade enterprises under the same brand. Small entrepreneurs are dependent on the parent company. This is confirmed by the contract. Obligations - compliance with all rules established by the franchisor.

The responsibilities of the parent organization include the provision of services for the supply of equipment, raw materials, technologies, staff training and accounting.

Relationships under a franchise agreement can be beneficial for participants: the franchisee is interested in high sales at the lowest cost. The parent company is in the market leadership, which is difficult to do alone.

A small entrepreneur is obliged to comply with the rules of doing business, to participate in campaigns related to advertising and marketing conducted by the franchisor. The franchisee may provide financial loans to the franchisee if needed.

Types of franchising

1. The classic view - there are royalties, a lump-sum fee (a single payment when buying a brand), registration for the rights to use the brand, strict requirements of the franchisor and reporting to him.
2. A silver franchise is a transfer of a regulated business. The franchisor is engaged in the construction or rental of premises with the condition of receiving a constant percentage of the profits of the entrepreneur.
3. Free view - use of the company's brand, free education employees of the entrepreneur, special prices for the supply of goods and other benefits. The price of a franchise is higher than its other types.
4. Golden Franchise - The exclusive right to operate a franchise in a region or country. There is a possibility of sub-franchising: an entrepreneur can provide a franchise himself.
5. Lease - ownership of the business remains with the parent company.

A franchise in the form of issuing a license to national entrepreneurs is widespread foreign companies- attraction of investments from abroad to the country. The franchise is beneficial for stabilization, development of the economy and gives the following effects:

• entrepreneurs who have received a license are entitled to use the proven business methods of the licensor;
• the organization that issued the license lays the foundation for its activities on the territory of the country and region;
• consumers continue to use proven products and services.

Advantages and disadvantages

There are often stringent requirements for the franchise buyer to exit the business. In some cases - a ban on competitive activities for several years in a certain territory.

Depending on the type of franchise, contract buyers may be required to pay for advertising and marketing campaigns. At the same time, they are not provided with reports on the funds spent. That is, the entrepreneur's money may not be used in the best way.

Running a franchise business has the following benefits:

• the possibility of expanding the company in the market;
• strengthening reputation;
• more information about the product by opening new outlets.

For the franchisor, selling a franchise gives a stable volume of sales from products or services, since entrepreneurs are obliged to buy out batches of products under the contract. If the income is stable, then the company plans and develops new directions.

The franchisor, before opening a franchise, must be confident in the effectiveness of his business, so that the entrepreneur, when buying a franchise, knows that the business model will not bring a loss. The franchisee with the purchase of the contract gains the following advantages:

• easy opening own project, the entrepreneur will retain independence in economic and legal terms;
• a wide choice of industry - a potential entrepreneur can learn about the franchisor's business (commercial offer) before investing;
• reduction of potential risks - the organization for the exhausted franchise becomes part of the parent company, the franchisor helps the entrepreneur in case of problems;
• trouble-free entry to the market - a well-known brand that has proven itself is uninterruptedly acquired by customers;
• low advertising costs;
• uninterrupted supply of products.

Source of profit

The company that has implemented the franchise receives income from various sources:

• franchisee fees;
• payments or share of sales;
• margin on materials and supplied goods;
• wholesale discounts;
• leasing premises to franchisees;
• interest on a loan granted to an entrepreneur;
• fees for advertising and marketing from the franchisee;
• own trading companies.

The legislative framework

In the legislation of the Russian Federation, franchising is regulated by the Civil Code of the Russian Federation Chapter 54 "Commercial concession". The term "franchise" is not used.

Article 1027 of the Civil Code of the Russian Federation defines the content. The copyright holder company provides the buyer with the use of a set of exclusive rights in its activities to the extent specified in the agreement.

Franchising is a progressive form of activity for small entrepreneurs and large companies. The franchise agreement is an independent object of regulation at the legislative level in more than 80 countries.

In a general sense, franchising is the "leasing" of a trademark or commercial designation. The use of a franchise is governed by an agreement between the franchisor (the one who grants the franchise) and the franchisee (the one who receives it). The content of the agreement can be different, from simple to very complex, containing the smallest details of the use of a trademark. As a rule, the contract regulates the amount of deductions for the use of the franchise (it can be fixed, one-time for a certain period, constituting a percentage of sales). There may be no requirement for deductions, but in this case, the franchisee undertakes to buy a certain amount of goods/works/services from the franchisor.

Conditions for the use of a trademark/brand may serve as a separate clause of the contracts. These requirements can be very simple (for example, the franchisee has the right to use the brand in a particular industry) or rigid (for example, the franchisee undertakes to use the equipment in the store in strict accordance with the requirements of the franchisor - from the size and color of the shelves to the staff uniform).

• the franchisor receives royalties for the use of his trademark;
• the franchisee pays an initial fee for the right to become part of the system;
• The franchisor provides the franchisee with a business system.

The history of franchising

The prototype of the modern franchising system is considered to be the Singer sewing machine sales and service system. The founder of the world famous Singer Sewing machine company, Isaac Singer, became the founder of modern franchising. Beginning in 1851, the Singer firm entered into a written franchise agreement with distributors of goods, the agreement transferred the right to sell and repair sewing machines in a certain territory of the United States.

At the time of the organization of the world's first full-fledged franchise system, the Singer company provided mass production sewing machines, allowing to maintain the most competitive prices, but at the same time did not have an established service system that would allow organizing maintenance and repair of machines throughout the United States. In this regard, a franchise system was created, which provided financially independent firms with exclusive rights to sell and service sewing machines in a certain territory. These early franchises were, at their core, operating distribution agreements with the additional obligation of the franchisee (dealer) to service the machines.

Modern franchising experienced a real upsurge when General Motors began to use franchised dealerships.

Classical commodity franchising, which distributes goods and services in the franchisor - franchisor system, began to change only in the 50s of the last century.

In Russia, franchising is beginning to become widespread only in recent years. In particular, most of the Pyaterochka grocery discounter chain, part of the Euroset communication stores, the 2GIS electronic reference card, 1C company operate under the franchise scheme.

Franchising under Russian law: commercial concession agreement

In Russian law, franchising relations are regulated commercial concession agreement.

Under a commercial concession agreement, one party (right holder) undertakes to grant the other party (user) for a fee for a period or without specifying a period, the right to use in entrepreneurial activity user a set of exclusive rights belonging to the copyright holder, including the right to a trademark, service mark, as well as rights to other objects of exclusive rights provided for by the contract, in particular to a commercial designation, a secret of production (know-how).

A commercial concession agreement provides for the use of a set of exclusive rights, business reputation and commercial experience of the right holder in a certain amount (in particular, with the establishment of a minimum and (or) maximum amount of use), with or without indicating the territory of use in relation to a certain area of ​​business activity (sale of goods received from the copyright holder or produced by the user, the implementation of another trading activities performance of work, provision of services).

The parties to a commercial concession agreement may be commercial organizations and citizens registered as individual entrepreneurs.

Benefits of franchising

Benefits for the franchisor

For the franchisor, the priority benefit of franchising lies in the fact that he receives, albeit a small, but guaranteed stable volume of sales of his products, since the franchisee is obliged to buy from him the consignments of goods, consumables or other products / services specified by the contract. If the income is stable, then it can be successfully planned for the future, which means that new directions can be developed.
With all this, the franchisor is not burdened with the difficulties associated with a number of expenses that ordinary players have - training and recruitment, quality control, etc. In addition, the development of a franchise network is an excellent brand advertisement that does not require special financial investments.

Benefits for franchisees

Using a proven business system

Before offering his franchise on the market, the franchisor must "bring to mind" his business system, work out all business processes and prove the effectiveness of his business. Moreover, for the effective development of the franchise network, the franchisor must have a flagship enterprise, on the basis of which the business is cloned. Therefore, when acquiring a franchise, an entrepreneur acquires an already proven and proven business model that has proven its effectiveness.

Opportunity to start your own business

Despite the fact that the franchisor has a certain degree of control over the franchisee, which is mainly aimed at improving the efficiency of partners by identifying possible problems of partner enterprises at the stage of their inception, the franchisee retains economic and legal independence.

Choice of industry

A potential franchisee has the opportunity to get acquainted with the franchisor's business before the stage of investing its own funds. This can be done on the basis of open information - commercial offer the franchisor and its operating enterprises, both own and partner.

Opportunity to reduce risks

By opening a partner enterprise, with a well-developed franchise program, the franchisee becomes part of the "family", that is, unlike the opening independent enterprise, the franchisor does not leave partners face to face with many problems and risks of a start-up business.

Successful market entry secured

One of the main requirements for a franchised business is the demand for goods or services provided by the franchisor. Therefore, when buying a successful business idea and starting its activities under an already well-known brand, the franchisee already has a circle of consumers loyal to the brand by the time they open their business.

Minimum advertising and marketing costs

Due to the fact that the franchisee begins to operate as part of a well-known network, his initial advertising costs are reduced to providing advertising for the opening of the franchise business in the local market. The same is the case with the current advertising, which is aimed at the "promotion" of the franchise network in this particular region.

Gaining access to the franchisor's knowledge base

The franchisor, providing partners with his business system, transfers not only a well-functioning mechanism, but also an “instruction” for its efficient use. The franchisor teaches its partners how to effectively build a business, taking into account all its specific features.

Guaranteed Supply Chain

Since franchising, as a rule, is a priority for companies, and partners - franchisees - have the best conditions, the franchisor seeks to provide this direction the greatest resources, including delivery issues.

Franchising Disadvantages

• Franchisees are forced to follow the rules and restrictions set by the franchisor, even if they do not bring maximum benefit to the business.
• Franchisees are often required to purchase raw materials and products from suppliers designated by the franchisor, which may limit their access to the free market and force them to purchase raw materials and products at inflated prices.
• Franchisees may be subject to severe restrictions on exit from the business, including a ban on opening competing organizations for a certain period or in a certain territory.
• Franchisees rarely have influence over centralized marketing and advertising, but may be forced to pay for centralized marketing and advertising. advertising campaigns. Thus, their funds may not be used in their best interests.

Notable franchise companies

There are many companies that provide turnkey business. At the same time, it should be noted that the name “franchisor company” does not mean that the company offers all its capacities for franchising, it can also have a certain number of objects in its “personal” property.

Notes

Sources

Growth strategy"

• Steven Spinelli Jr., Robert M. Rosenberg, Sue Burley Franchising = Franchising: Pathway to Wealth Creation. - M .: "Williams", 2006. - S. 384. - ISBN 0-13-009717-9

see also

Links

You will learn what a franchise is, what types of franchises are, and what are the main pros and cons of starting a franchise business

Hello dear friends! In touch Alexander Berezhnov, entrepreneur and founder of the HiterBober.ru website

Today we will talk about such a thing as a franchise.

Recently, the direction of franchising is gaining immense popularity, and in my opinion, it is completely justified.

Starting your own business by purchasing a ready-made franchise gives an aspiring entrepreneur wide opportunities. But this method also carries some dangers.

All this will be discussed in today's article.

1. What is a franchise - we give a definition

The classic wording is as follows.

Franchise is a set of benefits that allows legal entities and individuals to use the brand, author's developments, and the franchisor's business model.

There is another definition of a franchise, I formulated it myself. It is more applicable to building a business in general.

Franchise- this is a paid right to open a business under the auspices of a well-known trademark (brand), using its rules, technologies, way of doing business.

This term can be described in different ways. In my definition, I conveyed the term "franchise" in simple words. Let's see how this model works in practice.

Franchising is a form of cooperation when a well-known brand offers a novice entrepreneur to acquire the right to use his name. The subject of sale is not only the name ( trademark), but also technologies, equipment, a package of documents, marketing strategy. Together they make up a complete business model, which the entrepreneur has the right to use immediately after the purchase.

Important! The franchisor (the selling side) transfers the technology to the franchisee (the buying side) to get the business back on track as quickly as possible. The proposed business model is called a franchise.

Principles of franchising

Experienced businessmen know that starting a business from scratch is extremely difficult. Even with an idea, a budget, and advertising, selling a thing without a story is much harder than a Gucci scarf and Versace glasses. It takes years to develop a business; the first months you have to make financial injections without the hope of getting a return. But you have to make a living and feed your family. And then franchising comes to the aid of a novice businessman.

This is interesting! The word Franchise originally appeared in French, but it was the inhabitants of the English-speaking countries who put into it the economic meaning that it has today. Therefore, the English pronunciation of the word was fixed.

Visiting a Burger club restaurant, wearing Sali shoes, buying a can of Coca-Cola, a person is unaware that he is the object of franchising. The famous Isaac Singer is considered the first franchisor. By transferring the rights to sell and repair his sewing machines to other businessmen, he spread the prototype of modern franchising throughout the United States.

What is the difference between franchising and franchising

Pros and cons of franchising

The secret of the popularity of this type of entrepreneurship is simple: it is beneficial for both parties. Franchiser's benefit in acquiring reliable business partners, control over your brand and generate additional income. The benefit of the franchisee is based on receiving clear and understandable instructions for starting a business and guarantees that the goods will be bought and the money spent will be returned.

System disadvantages:

1. dependence of the franchisee on the franchisor - in case of dishonesty of the latter, the entrepreneur will spend money and will not receive the expected effect in return
2. inequality of the transaction - although the nuances of cooperation are negotiated by both parties jointly, experienced lawyers of the selling party insert clauses into the contract that provide them with benefits in any case.
3. the complexity of conducting civilized franchising in Russian conditions– the imbalance between the standard of living in large cities and regions can lead to the fact that the idea, which went “with a bang” in Moscow, will not arouse any enthusiasm in Saratov or the Far East.

An additional risk of franchising "in Russian" is the minimum participation in the transaction on the part of the state. In Western countries, franchisees receive benefits from banks and state guarantees; franchising gives them an edge. In Russia, this is a business at your own peril and risk; banks refuse soft loans, the success of the business depends on the entrepreneurial spirit and efforts of the franchisee, the honesty and conscientiousness of the franchisor.

The disadvantages of the system lead to the next question: how to minimize the threat of losing money, find a good franchisor, buy a profitable franchise.

How to write a good franchise agreement

Acquiring rights from famous brands is a win-win option, which means super income and minimal risk. But the starting capital for buying such a franchise is measured in millions of rubles. A novice businessman cannot afford this option - he is looking for a franchisor with loyal conditions for beginners. This is used by unscrupulous companies that seek to sell air under the guise of a franchise.

What to look for when drafting a contract

1. The subjects of the contract can only be legal entities.
2. It is useful to ask Rospatent if the franchisor legally owns what he sells, ask to present the relevant documents.
3. As in any contract, the rights and obligations of the parties, the size of the lump-sum (initial) contribution and the percentage of deductions from profits (if any) should be clearly and unambiguously prescribed.
4. Be sure to indicate the amount of transferred rights: what exactly the buyer pays for. Here it is important to stipulate the time of using someone else's trademark and the question of the work of competitors on their territory.
5. It is advisable to provide for the actions of the parties in the event of termination of the contract. Beginning businessmen often neglect this point - and make a mistake. A real businessman must foresee everything.

Important! General rule this is - all issues of future cooperation are clarified in advance and documented.

How to choose the best franchise

Although there is no official grading, franchisors are divided into those who are interested in their reputation and close cooperation, and those who want to sell more franchises and wash their hands. The first ones put forward detailed conditions and present a list of restrictions. The fact that the owner of the brand cares about how things go for the wards is a plus. But strict control is sometimes not to the liking of a free businessman. If the terms of the contract are not fulfilled, the franchisor will terminate the relationship and will not return the money.

But franchisors of the first category provide novice entrepreneurs with really working tools. By following their step-by-step instructions, even an inexperienced franchisee will set things right and get a legitimate (and most importantly, quick) profit. Such patrons not only give general recommendations, they offer to help with equipment, materials, teach, tell all the subtleties of the chosen direction literally on the fingers. They are interested in the success of the subsidiary and the latter's profit.

Franchising is a system of mutually beneficial partnerships that arise between the seller and the buyer of a franchise (French franchise - benefit, privilege, approx. the right to use the brand and business model). The franchisor (seller), in simple terms, is a company with a recognizable brand, extensive experience in doing business, a positive reputation, a wide client base. The franchisee (buyer), in turn, is a firm or a private entrepreneur who has bought the right to work under someone else's brand. The partnership is based on the grant of a license to use trademark, management systems, business technologies with mutual obligations and benefits for its conduct. It is important to note that a non-launched, non-existing business model cannot be developed using such a system.

The history of franchising in the world

The features of this business system were also manifested in the Middle Ages, but in the format familiar to us, it began its history in the United States in the 50s of the XX century. Even at that time, Baskin Robbins and Zinger noticed the following trend: the larger the number of enterprises, the more difficult it is to manage them, maintain a high level of product quality and sales volume. To solve the problem, the following idea was put forward: to provide your brand to other entrepreneurs so that they develop their business under the flagship of the company, while deducting appropriate payments for using the brand.

History of franchising in Russia

In the 80s and 90s of the last century, Russian market well-known foreign chains came out - PepsiCo, Kodak, Subway and others, which laid the foundation for franchising in the country. The baton was also intercepted by national brands - for example, 1C, Sportmaster, Teremok. Today in Russia there are a large number of such partnerships in various fields. Such cooperation in the country is regulated by a commercial concession agreement (an agreement concluded in writing between the buyer of the right to use the brand and its owner).

How Franchising Works: Responsibilities of the Parties

Types of franchising

Despite the fact that there are many different classifications, let's focus on the main types of franchising. Classic - the most common type, which includes royalties and a lump-sum payment to the owner of the brand, its strict control over the activities of the launched outlet. With a turnkey business, the company creates an enterprise on its own, then transferring it to the management of a partner on the terms of receiving a percentage of the proceeds. A master franchise involves the development of a brand in a certain territory by an entrepreneur alone. He, in turn, can independently attract new partners to develop a trademark in a given area. The system in the "second generation" is called sub-franchising.

Pros and cons of franchising

Is franchising profitable?

This type of business reduces the risk of an unsuccessful launch of the enterprise at times. Let's analyze it in an accessible way: if an entrepreneur opens own business, he faces a lot of obstacles. He needs to choose the right format for the project, create a brand, develop a strategy, take care of official registration ... And these are just some of the issues that an entrepreneur must solve. It is not known how much time and money it takes to succeed in the market. Accordingly, the project may not justify the hopes at all (and this is with all the efforts!) And fall victim to fierce competition. Franchising is designed to eliminate such errors. The company went through a thorny path, understanding all the subtleties of the market and the enterprise in particular, earning popularity with customers. She transfers all her achievements to her partner, helps with doing business. Therefore, yes, franchising is beneficial both for the investor (gets a successful business model with “built-in updates”) and for the brand owner (gets a lump-sum fee and royalties).