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Using Franchises

Learn about franchises, their management skills, and the characteristics, advantages, and disadvantages of being a franchisee or franchisor. Discover the basics of franchises and how they operate.

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Using Franchises

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  1. Using Franchises

  2. Next Generation Science / Common Core Standards Addressed! • CCSS. ELA Literacy. WHST. 11‐12.8 Gather relevant information from multiple authoritative print and digital sources, using advanced searches effectively; assess the strengths and limitations of each source in terms of the specific task, purpose, and audience; integrate information into the text selectively to maintain the flow of ideas, avoiding plagiarism and overreliance on any one source and following a standard format for citation.

  3. Agriculture, Food and Natural Resource Standards Addressed! • ABS.01.03. Devise and apply management skills to organize and run an AFNR business in an efficient, legal and ethical manner. • ABS.01.03.01.a. Define and provide examples of management skills used to organize an AFNR business (e.g., management types, organizational structures, time management techniques, conducting business agreements, etc.).

  4. Student Learning Objectives • Define franchises and explain how they work. • Describe the characteristics of a franchise. • Explain the advantages and disadvantages of franchises.

  5. Terms • Franchise • Franchisee • Franchisor • Royalty

  6. Interest Approach • Name as many local restaurants as you can. • Now separate them into two categories: franchises and non-franchises. • Describe some of the characteristics those in the franchise list have in common.

  7. Franchise • A franchise is a special form of business organization in which a firm with a successful product enters into a contractual relationship that allows another party to sell its product under the parent company’s name.

  8. Franchisor • The franchisor is the parent company or entity that sells the right to use its name and sell its products. • In the case of restaurants, the parent company sells the right for its established name and food products to be sold on the local level by a local proprietor.

  9. Franchisee • The franchisee is the person on the local level who purchases the right to use the parent company’s name and to sell its established product. • In essence, the franchisee buys the right to use a system of operation and line of products that have proven successful.

  10. Characteristics of a franchise • In a franchise, the parent company or franchisor prepackages much of the business planning that is used on the local level by the franchisee. • The franchisee agrees to run the business as stipulated by the franchisor. • In return, the franchisee has access to a company and product with a proven track record.

  11. Characteristics of a franchise • Examples of the types of business planning offered by franchisors include: • Management training • Advertisement and selling

  12. Management Training • The franchisor offers training and guidance in the operation and management of the franchise. • The franchisee is trained in the successful practices used by the parent company. • This training is offered before the franchisee begins operation and continues throughout the term of the franchise agreement.

  13. Advertising and Selling • The franchisor offers advice and expertise not available to smaller operations. • This includes national television commercials and print advertising, premium offers, and effective packaging.

  14. Advantages and Disadvantages • As with any type of business organization, franchises offer distinct advantages and disadvantages.

  15. Franchise Advantages • The franchise offers a nationally recognized name and reputation. • The franchisee is offered assistance in securing a location and designing a building. • The franchisee can depend on successful methods for controlling inventory and operations.

  16. Franchise Advantages • The franchisor offers national advertising and promotional assistance. • Franchisees have access to initial and continuing training and counseling.

  17. Franchise Disadvantages • The franchisee must invest a significant amount in set-up and franchise costs. • The franchisor may require that a portion of each month’s sales be paid back to it in the form of a royalty.

  18. Royalty • A royalty is a payment made for the use of property, such as a franchise or patent. • The amount of the royalty is based on a percentage of revenues derived from the sale of the franchised product.

  19. Franchise Disadvantages • The franchisee may not have much say in the design of the building and its interior decor. • Franchisors usually have a large number or rules and regulations that must be followed. • Some of these may be especially cumbersome to small franchisees.

  20. Franchise Disadvantages • The franchisee may have to deal with restrictions on pricing. • Even if a local market can bear a higher or lower price for a product, the franchisor may dictate that it be sold for the price they set.

  21. Review / Summary • Define Franchise and name two examples from our community. • What characteristics would you use to describe franchises? • What are some of the advantages and disadvantages of franchises?

  22. The End!

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