Business Studies

Coursework

Operating Franchises

Irfaan Karim

Operating Franchises

Introduction

A franchise is a legal and commercial relationship between the owner of a business, a trademark, service mark, trade name or advertising symbol and an individual or group seeking the right to use that identification in a business.

The franchise agreement governs the method for conducting business between the two parties. Industries that rely on franchised businesses to distribute their products and services touch every aspect of life, from car sales to fast foods and tax preparation.

In its simplest form, a franchiser owns the right to a name or trademark and sells that right to a franchisee. This is known as product/trade name franchising.

In the more complex form, known as business format franchising, a broader and ongoing relationship exists between the two parties. Business format franchises often provide a full range of services, including Site selection, Training, Product supply, Marketing plans and Financing.

Generally, a franchisee sells goods or services that are supplied by the franchiser or that meet the franchiser's quality standards.

The example I will be using as a franchise will be McDonald’s. McDonald's has always been a franchising Company and has relied on its franchisees to play a major role in its success. McDonald's remains committed to franchising as a predominant way of doing business. Approximately 70% of McDonald's worldwide restaurant businesses are owned and operated by independent businessmen and women, the franchisees.

McDonald's is one of only a handful of brands that command instant recognition in virtually every country of the world. McDonald's began with one restaurant in the US in 1955 and today there are more than 26,500 restaurants in over 119 countries, serving around 39 million people every day – making McDonald's by far the largest food service company in the world.

Franchisees are crucial to McDonald's success; they deliver brand values directly to the customer. Worldwide, over 70 percent of the restaurants are run by independent entrepreneurs – making them also the world's largest and most successful franchising company.

Franchising is not for everyone though – to operate a McDonald's franchise you need the managerial and personal skills necessary to run a business employing 50 or more people and serving half-a-million customers a year.

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It should come as no surprise, then, that their selection process is rigorous. They look for individuals with a demonstrated ability to lead and manage people, good common business sense, and a track record of success in whatever they are doing. A restaurant background is not necessary, nor is a large amount of capital – although the franchisees will be asked to make a personal investment in the business. They franchise only to individuals, not to partnerships, absentee investors or families.

The Franchise Agreement                                 ...

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