Restaurant Franchising, 3rd Edition

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CHAPTER 3

PROS AND CONS OF FRANCHISING

“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

F

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

practices

Cost of services

Overdependence

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

Communication

ADVANTAGES TO FRANCHISEES

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 benefi 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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