When we first started franchising, our mission was simple—successful
and satisfied partners as a means to develop our concept. Over the
years, our franchises partners have been invaluable sources of capital,
talent and local market knowledge, and Panera is committed to
rewarding their success with personalized support and attention from
the company. The close relationships we build with our franchisees
are unique and intentional. By requiring our franchise partners to own
multiple cafés, we create partnerships where both sides are heavily
invested and connected to the brand.”
—Todd Burns, VP, Franchise Operations, Panera Bread
ranchising presents an exciting opportunity for both franchisor and
franchisee, who share a symbiotic relationship. Much of the success of
any franchise system depends on how smooth this relationship is. Because
both franchisors and franchisees have personal goals that can be achieved
by mutual cooperation and trust, it is imperative that they understand all
operational aspects of the business. Many franchisor–franchisee relationship
problems can be traced to informational imbalance, which can occur before
or after entering into contract. Some franchisees do not understand the funda-
mentals of franchising and at times are impressed with the apparent glamour
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70 Restaurant Franchising
of successful franchise businesses, which they may observe without being
directly involved.
Franchising provide a collaborative alliance between the franchisee
and the franchisor. The alliance depends on the cooperation between two
entrepreneurs in order to be effective. This cooperation also leads to com-
petitive advantages when compared to the independently formed and oper-
ated businesses. The franchisor has access to capital, cost sharing with the
franchisee, market penetration, economies of scale, motivated workforce,
and cost control. The franchisee in turn gets an opportunity to enter a busi-
ness with a proven concept and brand name.
Franchisees are buying an established business with loyal customers.
The intent of this chapter is to outline the pros and cons of franchising,
viewed from the point of view of franchisees as well as franchisors. A sum-
mary of advantages and disadvantages is presented in Tables 3.1 and 3.2.
Table 3.1 Advantages of Franchising
To franchisee Established concept
Tools for success
Technical and managerial help
Standards and quality control
Minimum risk
Less operating capital
Access to credit
Comparative assessment
Research and development
Advertisement and promotion
Other unique opportunities
To franchisor Business expansion
Buying power
Operational convenience
Franchisee’s contribution
Motivation and expansion
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Pros and Cons of Franchising 71
Table 3.2 Disadvantages of Franchising
To franchisee Unfulfilled expectations
Lack of freedom
Advertisement and promotion
Cost of services
Monotony and lack of challenge
Termination and renewal
Other problems
To franchisor Lack of freedom
Franchisee’s financial situation
Franchisee recruitment and selection
Franchisee retention
Several advantages to franchisees result from their participation in a
franchise system. The overwhelming advantages of franchising are what
makes franchising a successful method of doing business. The most import-
ant advantages are discussed in the following descriptions.
Established Concept
The franchisee buys into a business that has an established concept.
The product or service provided is unique and has a potential for success.
In business-format franchising, which includes most franchised restaurants,
the entire format is available for use. If the franchise has been in operation
for some time, consumers are aware of the company, and in many cases, the
reputation of the product or service is well established. In addition, the fran-
chisees will bene t from already established customers who are loyal to a
particular brand. Thus a franchisee is buying into an established business—a
major advantage. In the case of restaurants, if the menu is well known and
includes popular items, the business is free from startup uncertainties. The
franchisee is actually purchasing the years of experience and the proven
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