Types of Franchises

Basically there are three types of franchises available. Variations may also exist as new innovations in franchising are developed. One of the main types of franchises is found in the automobile industry. Here, manufacturers use franchises to distribute their product lines. These dealerships act as retail stores for the automobile manufacturers. In some instances they are required to meet quotas set by the manufacturers but, as any franchise, they benefit from the advertising and management support provided by the franchiser. The most common type of franchise is the type that offers a name, image, method of doing business, and so on, such as McDonald's, Kentucky Fried Chicken, Speedy Muffler, Dunkin’ Donuts, and Holiday Inns.

Many franchises offer services such as personnel agencies, income tax preparation, and real estate. These services offer established names and reputations and methods of doing business. In some instances, such as real estate, the franchisee has actually been operating a business and then applies to become a member of the franchise.

Risk in Investing in a Franchise

Franchising involves many risks that the entrepreneur should be aware of before considering such an investment. We hear of the success of McDonald's or Burger King, yet for every one of the successes there are many failures. Franchising, like any other venture, is not for the passive person. It requires effort, as any business would, since business decisions such as hiring, scheduling, buying, accounting, and so on, are still the franchisee's responsibility. In many cases, long hours are required to ensure that the business operates effectively.

Certain steps can be taken to lower or minimize the risks of investing in a franchise.

Extensive Reading franchising makes sense for firms who find that local businessmen know best how to exploit their areas

Massive growth in franchising across Europe is forecast over the next few years as trade barriers disappear.

Something of a boom is predicted by a number of companies who are preparing an onslaught on European markets which are still relatively underdeveloped in franchising.

France and Britain are the most franchised-developed countries, but even in these two it is reckoned that only ten per cent of retail sales are made through franchised outlets.

The most optimistic projections suggest that by the end of this decade as much as half of all sales in Europe will come through franchisee outlets. American companies especially see Europe as a happy hunting ground and are using Britain with its common language as the launch pad for European expansion.

Names like McDonald's, Burger King, Kentucky Fried Chicken and, more recently, Domino's Pizza have already blazed trails across Europe. From now on it is likely to be US retailing and service companies that will make up the invasion force.

“We know of a number of US operators looking to use the UK as a foothold for moving into Europe,” says Stuart Brown a consultant with Stoy Hayward Franchising Services. “We expect considerable growth in cross-border franchising as a means of achieving international development. In most cases, companies need a local partner who knows the market place. Hence the expansion through master licences of franchising. Joint ventures are the name of the game.”

In retailing Body Shop has led the way in franchising in Europe. Having opened its first shop in Belgium in 1978 it now has more than 250 outlets in mainland Europe, from Finland to Portugal. Chairman Anita Roddick and her vision of local partnerships in other countries has made Body Shop one of the greatest retail successes since the war.

Benetton of Italy used the method of granting master licences to similar effect and another Italian casual clothing company, Stefanel, is using franchising to move into eastern European countries such as Czechoslovakia, Hungary, and Yugoslavia.

Local market expertise is essential, and while it means lower financial returns for the franchiser, the franchise method ensures lower risks.

Retailing is likely to be the biggest cross-border growth area and names like Mothercare, Evans (part of the Burton Group) and even Marks and Spencer are taking the franchise route to Europe. Next will come service companies, whether it be office cleaning, car tuning, computer technology, picture framing, hairdressing or legal services. One already making a move is Servicemaster, the US-based cleaning operator.

It is now well established in the UK and has moved into Germany, from where it is expecting to expand into other countries.

Printing services are another growth area. The US Kwik-Copy Corp is already well established in the UK under the name of Kall-Kwik, while the rival Sir Speedy has formed a joint venture with Fasprint de Espana with the aim of opening 200 print centres throughout mainland Europe in the next ten years through franchising.

To bring franchising to a wider public an increasing number of exhibitions are being held. The Blenheim Group are responsible for a number of these shows and their spokeswoman Cheryl Wallis says: 'Cross-border franchising is on the up and up now that trade restrictions are disappearing. Our Paris show was particularly well received. We had 22,000 visitors and 170 exhibitors, 12 per cent of whom were from outside France.' A number of French companies are poised to invade the UK via the franchise route, according to Peter Stern, senior franchise manager of NatWest. He says children's clothes retailer Jacadi, fashion chain Rodier, car-wash operator L'Elephant Bleu and three hoteliers are on the brink of franchising their business across the channel.

John Gooderham runs FMM Consultants International, which specialises in helping franchisers to expand out of the UK to all parts of the world. With associate companies in Paris, Cologne, Berlin, Milan and Amsterdam, FMM says cross-border franchising is flourishing. There may be no boundaries in Europe any more, but cultures remain very different.

'It is no use saying: what's good enough for the British is good enough for the French. You have to understand local culture, which is why franchising to local businessmen is the best way to expand.'

The range of franchise opportunities is now myriad. Nevada Bobs, a huge US golfing retailer, has opened six stores in the UK and is about to move onto the fair-ways of Germany and France.

Cross-border franchising is definitely the name of the game from now on.