SUPERSIZE WITH A FRANCHISE

John Green, Chairperson of the Irish Franchise Association

Franchising encompasses the best of both worlds as you can be your own boss but also benefit from a proven business format, reports Shane McGinley.

Franchising is derived from the French word for, 'free', and while very few franchising agreements are free the format has enjoyed increased growth and popularity in Ireland in recent years.

Records suggest that franchising dates back to at least the 1850s. Some early examples included hotels and bars in New South Wales, where franchising agreements were set up with breweries, and the early Western Union telegraph system which was franchised out to various different companies.

According to the official definition franchising is a method of doing business wherein a franchisor licenses trademarks and tried and proven methods of doing business to a franchisee in exchange for a recurring payment, and usually a percentage piece of gross sales or gross profits as well as the annual fees. The most prominent and successful example has been the fast food chain McDonalds, which now has franchised branches in 119 countries around the world serving nearly 50 million customers each day.

The reason franchising has become so success is because the format is more successful than a standalone business, says John Green, Chairperson of the Irish Franchise Association. Green reports that statistics show that more than 80% of franchise businesses are still in business ten to fifteen years later, while 90% of standalone businesses fail within the first 5 years.

Integral Part Of Our Economy

"The sector has become an integral part of our economy and has experienced exceptional growth over the last two years," comments Cathal Muckian, Director of Business Banking at Bank of Ireland, in The Bank of Ireland Franchising in Ireland Survey 2004. "Franchising is one of the new enterprise sectors, which continues to drive the development of our economy contributing to employment, new and innovative products for consumers and general wealth creation."

To emphasis the importance and potential of the sector Bank of Ireland also launched a €100m Franchising Fund designed to assist the expansion of franchise companies and to facilitate people who wish to start or expand their own businesses through franchising.

"When someone invests in a franchise business what they are really investing in is know how," believes Green, "they are investing in the brand name and the trademarks and all the problems that are generally associated with start up businesses are ironed before it is franchised."

Part Of A Larger Network

Chem-Dry Carpet Cleaning Franchise – one of Ireland's most successful franchises

One of the main benefits of owning a franchise is that although you are your own boss you are part of a larger network; can access advice and training from other members in the network and the central hub; can find out about new products or ideas that have been brought to the market and can take advantage of tried and tested methods of operation.

Green acknowledges that it is more expensive to start a franchise but when you off-set the initial investment against the training and expertise you get and the market you are given access to, it is less expensive in the long run. The franchise system also has the scale to purchase goods at more competitive prices, enabling franchisees to compete on price with single unit operators.

Most franchisees also pay an advertising levy, which is then pooled together and gives them access to national advertising implemented by professional advertising agencies in a cost effective way that traditional businesses would not have access to.

Brand Awarness

Customer recognition of franchise brands is very high so well known names, such as Mango, O'Briens and Pizza Hut, are very attractive tenants for a shopping centre owner as is evident by the influx of franchised businesses establishing in new shopping centres in many urban areas.

In terms of set up costs the 2004 survey found that the average initial fee for a franchise was €22,200, the average initial working capital required was €40,280 and the average total investment cost was €222,000. For ongoing costs the average fixed fee was €7,570, while the royalty fee was on average 7.4% and the advertising levy on average 2.6%.

Besides signing up to an established franchise there are also some other options available within the franchising sector. Green reports that one option investors can look at is bringing a franchise from abroad to Ireland and becoming the Master Franchiser for the company and being in command of developing the franchise in the Republic.

Options

Secondly another option is to franchise out your own business. The Irish Franchise Association run seminars on how companies can successfully go about doing this and Green reports that it a growing trend among Irish businesses to develop a brand that can easily be franchised out around the country and beyond.

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