2019/07/05(Source: FCオーナーズ運営事務局)
Many companies operate multiple stores under the same name, ranging from restaurants and convenience stores to service industries. However, in most cases, these stores are operated by "owners" who have joined a franchise and independently opened their businesses using the business model developed by the franchise headquarters.
A franchise business involves developing a business using the business model of the franchise headquarters. In return, the owner pays a franchise fee and royalties to the franchise headquarters.
For owners, the advantage of joining a franchise is that it's easy to start even without experience. This is possible because it utilizes the business model established by the franchise headquarters and is based on successful case studies. Furthermore, the franchise headquarters that provides the business model also benefits from increased brand strength as the number of franchisees grows. It's a win-win situation for both parties.
Another advantage for owners is that profit forecasting is easier.
Because they are following the successful case studies of other stores and the headquarters, cost management is easier, making it easier to prevent bankruptcy due to losses. Because a successful business model already exists at the headquarters, it is easier to prepare a business plan, and you can expect to receive loans from banks and financial institutions.
Here, we will mainly discuss the overview of franchising, which is a win-win business.
(1) What are royalties?
(2) What is headquarters support?
(3) Advantages of franchise business
(4) Disadvantages of franchise business
(5) The beginning and present of franchising
(6) Success and failure in franchising
(1) What are royalties?
When joining a franchise, royalties are almost always incurred. Royalties are the fees that franchise owners pay to the headquarters.
The calculation method is mainly one of the following:
Sales percentage method: A method of payment according to monthly sales
Fixed amount method: A method of payment of the same amount every month
Gross profit sharing method: A method of payment according to monthly gross profit
When considering the costs of starting a business, be sure to take these royalties into consideration. (2) What is Headquarters Support?
The headquarters constantly improves manuals and operations based on the success stories of all stores, supporting franchisees in increasing their sales. The content and quality of headquarters support before and after opening varies depending on the franchise, but you can generally receive the following support:
Guidance on customer service and other things necessary for opening
Training
Financial support (financing, etc.)
Selection of a location appropriate for the business
Sharing industry information with the owner
Improvement of products
Owner visits by supervisors (SV)
*Supervisor (SV): Headquarters' store support staff. They support owners with various advice regarding store operations.
(3) Advantages of Franchise Business
■ Brand Effect
Being branded means that many people know it. The biggest advantage of joining a franchise business is this brand effect.
Have you ever had the experience of thinking, "I was wondering which restaurant to eat at, so I'll go into a restaurant with a name I know"? The customer attraction effect of brand power can make a significant difference when comparing an unknown brand with an unknown store.
■ Easy to start even without experience
Starting your own business often requires acquiring specialized knowledge and takes time to prepare for independence. However, by joining a franchise, you receive thorough training and advice from headquarters supervisors (SV) to help you start your business smoothly and with peace of mind.
■ Headquarters' promotional power
Many franchise headquarters advertise all franchise stores, and you can benefit from this advertising effect. The content of the advertising varies, including TV commercials, magazine ads, and internet ads, but you can invest in advertising costs that would be expensive if you started your own business independently.
■ Franchise owners only need to focus on operations
The products and services offered in the store are developed and improved daily by the headquarters. Because you can confidently offer products, the owner can concentrate only on management and customer service.
(4) Disadvantages of Franchise Business
■ Must Follow Manuals
When opening a business as a franchisee, you must follow the headquarters' manual. Therefore, most headquarters generally prohibit creating unique menus or developing unique advertising and promotions.
■ Royalties Must Be Paid
Royalties must be paid when operating a franchise business. While some companies offer variable payment amounts or considerations for losses, generally, payments are required even when the business is not performing well.
■ Susceptible to External Environments
Normally, if other companies open stores or the environment in the area changes, you can relocate the store or change the type of business. However, since a franchise business is a contract, the owner cannot take measures such as relocation at their own discretion. Of course, the headquarters will carefully select the location with this in mind, but this disadvantage should still be understood.
■ Prohibition of Opening a Competitive Business (After Contract Termination)
Many franchise headquarters prohibit opening a comparable business after the contract period ends. (Depending on the headquarters, it may be prohibited for several years.)
■ Counterproductive Effects on Brands
If staff from another store cause problems and it's picked up on TV news or the internet, the store will suffer reputational damage. This is counterproductive to the brand's image, and the impact in such cases can be significant.
(5) History of Franchising
The franchise business originated in the United States in the 1950s.
It was then introduced to Japan in the 1960s and exploded in popularity. Many people tend to associate franchises with the convenience store business, but the number of companies with franchise headquarters actually exceeds 1,000. There are a wide variety of franchise businesses, not only convenience stores and restaurants, but also service industries, and including directly managed stores, the total number of franchise stores in Japan seems to exceed 260,000.
Furthermore, the market size of the entire franchise industry is over 25 trillion yen, and the potential for growth in this industry as a whole is as vast as the number of ideas. Recently, opportunities to receive subsidies and grants from the government to promote independence and entrepreneurship have increased, so taking advantage of these and trying your hand at a franchise business would be a good opportunity.
(6) Success & Failure in Franchising
The franchise headquarters and franchisees are business partners. Success is by no means guaranteed, and even if you join a franchise, there are successes and failures just like with any other independent business. Below are some examples of reasons why owners might feel that joining a franchise business was "good" or "not good."
■Things I felt were good
I had more time to spend with my family
I successfully expanded my business by opening multiple stores
I successfully managed a company by developing multiple brands as a mega-franchisee
I was able to work on the job I had always wanted to do
I was no longer bound by company rules
I started earning more than when I was a company employee
My work-life balance improved
*Mega-franchisee: A franchisee (company) with 30 or more stores and sales of 2 billion yen or more
■Things I felt were not good
Working capital ran out
Sales declined due to the opening of a nearby competitor
Brand power declined, making it difficult to attract customers
I suffered from operating at a loss
The brand suffered reputational damage, making it difficult to manage the business
Did the characteristics of the franchise business match your future vision?
Franchise management is one way to become independent and start a business. In some cases, it may be better to manage your business yourself rather than through a franchise. Franchise independence and starting a business is suitable for people who can think of ways to improve things themselves while following the headquarters' manual.
Conversely, those who have a clear idea of what they want to do may find greater fulfillment and freedom by becoming independent rather than joining a franchise.
However, there are various differences between franchise businesses beyond those mentioned above. If you're even slightly interested, let's deepen your knowledge by researching companies that interest you.
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