Franchising and the Legal Framework.
A franchise organisation is a Business that allows other businesses to trade under its name and sell its products. The business granting the Franchise is called the franchiser and the business taking the business out is called the franchisee. Businesses like McDonalds and K.F.C are franchisees with business all over the country.
Advantages to the Franchisee.
If the franchisee is operating its business under an already well-established name then they are more likely to succeed than one under a new name.
Franchisees are actually a small business but operate as if they were part of a larger one. In doing so banks are prepared to franchisees on because they believe they carry a low-risk factor.
Franchisees also have the advantage of being able to buy their products in bulk, which works out, cheaper for the whole business.
Disadvantages to the franchisee.
The franchisee has less control over their business and some franchisers have lots of dos and don’ts that can make some franchisees feel restricted.
The success of their business all depends on how successful the franchiser’s product is. Also if the president of the company does something incriminating then the whole set of franchises are probably going to be affected by it and the franchisee may loose their money.
No matter how much money the franchisee looses they still have to pay an annual fee.
Advantages of a Franchiser.
It is an easy way of expanding your business without having to do so much work yourself.
All the of the businesses rely on each other to maintain the high standard of the company to ensure that the maximum amount of customers come, so the franchiser doesn’t need to worry about any of them letting the name down.
By franchising the President and its team don’t have to worry about the running of the actual outlets but only the core activity of the business e.g. any legal agreements, any over seas business etc.
Disadvantages of a Franchiser.
By franchising your business then you have to rely on the franchisee for the success of your business and you have to find people who you believe will maintain the name of your company.
The franchiser doesn’t have much control over certain areas of the business and sometimes the franchisees can do their own thing.
To become a franchisee for McDonalds then you have to have a certain amount of financial backing. To buy an Existing restaurant you have to 25% of the purchasing price and if you want to buy a new restaurant you have to pay 40%.
The franchise agreement is an agreement that lets the franchisee operate and own single restaurant at one address under the name of McDonald’s for a period of about 20 years. This gives the franchisee the right/ privilege to use the McDonalds décor, logo, way of operating, account/ book keeping method, trademarks, menus, layout, formula and recipes for the menu items etc. They have a separate franchise lease to cover the owning of the restaurant premise.
The franchisee promises to operate their business keeping up the McDonalds standard of cleanliness, service, quality and value. The franchisee is expected to be properly involved in operating the business and to get involved with the local community and charity events. During the franchisees franchise term, they are expected to have only one business thought their McDonalds restaurants.
After McDonalds have decided on their franchisee, the franchisee and the franchiser sign a contract that make the whole thing legally binding.
There are many advantages to McDonalds being a franchise the main one is that over the past 20 years McDonalds have been able to expand massively and globally by franchising. The amount of McDonalds outlets is expanding all over the country for example in the town slough there are four McDonalds outlets, one in a retail park, one in the town high street, one on the way into slough and one at the entrance of an industrial estate. All of which hundreds of people pass through everyday, 3 of these McDonalds are drive thru’s. The business of McDonalds doesn’t have to worry about its outlets because part of the McDonald’s agreement with its franchisee is that the franchisee maintains that his or her restaurant keeps up the standard McDonalds has established. McDonalds presidential teams have the advantage of being able to leave
their outlets to their own demise and concentrate more on the core activity of the business.
Introduction
The first McDonalds restaurant opened in the UK in October 1974, its familiar symbol the golden arches can now been seen in almost every town you go too. The McDonalds M is cropping up all over the place in retail parks, airports, and high streets, on motorways almost everywhere lots of people go to.
By the end of 2000 there were 1,116 McDonalds restaurants operating in the UK. McDonalds franchises employ over 18,000 people and McDonalds as a company 50,000.
McDonalds are a private limited company with franchises nearly all over the world. Some of the McDonalds aims and objectives are to open an outlet in every town high street that can maintain one in the UK. At the moment the amount of Franchise outlets in the UK is well over 1,200 but that number is increasing rapidly. Although some outlets in the more expensive parts of england eg oxford street are being shut down because of the high rent prices on the properties. This could mean that they do make maximum profit but the places they are in are very busy so maybe they will not get maximum profit. With an outlet on almost ever high street corner it seemed the drive towards global supremacy had succeed. But after decades if domination, McDonalds appear to be on the retreatfrom some of its prime locations. The company has appointed property to maximise its assets. The first signs of the rationliastion come in the capital where outlets at the mist enviable locations including 341 oxford street
In 1974, McDonald's opened its first restaurant in the UK. Today, more than 2.5 million people in this country place their trust in McDonald's every day - trusting the Company to provide them with food of a high standard, quick service and value for money.
Conclusion.
The size of McDonalds has increased rapidly since it first became a franchise. Where ever you go theres bound to be a McDonalds outlet round the corner. McDonalds has no spread around the world and can found anywhere busy. The number of outlets in the number of outlets in the country was growing but is now slowing down and a lot of McDonalds restaurants in the big cities are being closed down. Most of the McDonalds outlets are franchises now. In the world there are 28,707 McDonalds outlets excluding
The Franchise Agreement.
When setting up a franchise the franchiser will always encounter problems when it comes to controlling the franchisee. The franchisor can encounter a number of different problems with the franchisee, most to do with freedom of control of the business.
McDonalds give the Franchisee a very big book with all the do’s and do not’s that McDonalds expect them to follow. This is very restricting on what the franchisee can actually do and because the restaurant is actually theirs they might not want to do what McDonalds tells them and do what they want. For example the Franchisee can’t suddenly decide that they want to sell MnM flavoured McFlurrys in their restaurant because people will then expect them to be sold in all McDonalds restaurants.
Franchisee’s that want to do their own thing shouldn’t become a franchisee because their restaurant reflects on the whole McDonalds business and they can’t do their own thing with out going to head office and putting the idea through so that it then can be marketed in every single McDonalds restaurant in the UK.
The terms of the franchise agreement let the franchisee operate and own one single McDonalds restaurant for the period of 20 years with all the McDonalds privileges e.g. using the McDonalds logo. In doing so McDonalds also expect you to put all your time for business into McDonalds and to spend 9 unpaid monthes learning how to run a McDonalds restaurant.
By franchising your business you can also suffer from bad publicity inflicted by your franchisee’s. Any food poisoning complaints, staff complaints, food quality complaints all reflects on McDonalds as a whole. If people get food poisoning from one McDonalds restaurant then they will probably be put of from going to another McDonalds restaurant even if they are entirely different places. If anything happens on a grand scale and it gets into the papers then McDonalds will suffer badly.
