- Franchising is a type of business model where a company (the franchisor) grants the right to use its brand name, products, and services to another company or individual (the franchisee) in exchange for a fee.
- The franchisee then operates a business using the franchisor’s brand name, products, and services, while also adhering to the franchisor’s guidelines and standards.
- Franchising can be an effective expansion strategy as it allows a company to rapidly expand its presence in new markets without having to bear the full cost and risk of starting new businesses from scratch.
- Franchising can also be a good option for entrepreneurs who want to start their own business but prefer to have the support and guidance of an established brand.
- Franchising can provide the franchisee with a proven business model, training, marketing support, and other resources that may not be available if starting a business from scratch.
- However, franchising can also be expensive, as the franchisee may need to pay an initial franchise fee, ongoing royalties, and other costs associated with running the business.
- There can also be restrictions on the franchisee’s operations, such as where and how they can sell products or services, which can limit their flexibility and creativity.
- As with any business, there is no guarantee of success with franchising, and it is important to thoroughly research the franchisor and the franchise opportunity before investing.
- Examples of franchising businesses in Zimbabwe include:
- Chicken Inn, a fast-food chain, has expanded its operations across Zimbabwe through franchising, with franchisees responsible for the operational costs and quality control of their locations.
- Nando’s, a restaurant chain, has used franchising to expand its operations across Zimbabwe, with franchisees responsible for adhering to the franchisor’s product and service standards.
- KFC, a global fast-food chain, has used franchising to expand its operations across Zimbabwe, with franchisees responsible for adhering to the franchisor’s operational standards and guidelines.
- We will now look at the advantages and disadvantages of franchising as a growth strategy
- It is important to know that in a franchise there are two parties a franchisor and franchisee (this is discussed under forms of business ownership)
- Each enjoys advantages and disadvantages that might or might not be the same. See that topic for more
Advantages of Franchising:
- Rapid Expansion: Franchising can enable rapid expansion of a business without the need for significant capital investment or operational resources from the franchisor.
- Established Brand: Franchising can enable a business to expand into new markets with an established brand and customer base, reducing the need for extensive marketing and promotion.
- Shared Risk: Franchising allows for shared risk between the franchisor and franchisee, with the franchisee responsible for many of the upfront costs and ongoing operational expenses.
- Increased Revenue: Franchising can lead to increased revenue through franchise fees, ongoing royalties, and sales of products or services from the franchisor to the franchisee.
- Consistency: Franchising can ensure consistency in operations, customer service, and product quality across multiple locations, maintaining the reputation and integrity of the brand.
- Local Market Knowledge: Franchisees often have better local market knowledge and understanding, which can lead to increased success and profitability in new markets.
Disadvantages of Franchising:
- Loss of Control: Franchising can result in a loss of control over the business, as franchisees are responsible for many aspects of the operations and may not adhere to the franchisor’s standards and guidelines.
- Upfront Costs: Franchising can require significant upfront costs for the franchisor to establish the franchise system and provide training and support to franchisees.
- Shared Profit: Franchising involves shared profits, with the franchisor receiving ongoing royalties and franchise fees from the franchisee.
- Legal Issues: Franchising involves complex legal agreements and requirements, which can be time-consuming and costly to establish and maintain.
- Brand Reputation: Franchising can be risky to the brand reputation if franchisees do not maintain the standards and quality of the franchisor’s products and services.
- Limited Growth Potential: Franchising may not be a suitable growth strategy for businesses that require significant operational control or those that cannot be easily replicated in multiple locations.
