Strategic Management Process

Franchising

Def: a franchise is a business relationship in which an individual “franchisee” pays a fee to the franshisor and, in return, has use the trade name (e.g: McDonalds).

Con:

• The franchisee must operate the business model according to standards and practices contractually stipulate.
• The franchisor is obligated to provide marketing support, management training and advices.

Advantages:

• The company would be able to shift its attention and limited capital from restaurant-level operations to systemwide marketing and brand building.=>have time to build reputation
• The cost of construction and site acquisition ( or leasing) would be shift to franchisees and would likely bring outlets into opration more rapidly.=>expand operation rapidly  
• Franchisees must buy or lease the land in an attraction location, and build the restaurant themslves.=>reduce investment

Disadvantages:

• Can’t totally control.
• The fee depends on the strength of the brand.
• No experience in enforcing frachise standards.

Rollout scenarios:

• Compare with the other two, franchisee take the least money for investment ($ 1 million) but also have the least margin on revenue(2%)
• Have longterm agreement: a 20-years term with renewal at the franchisor’s option, a 5% to 6% royalty on gross revenues, and an upfront fee.(typical term)
• Since we able to recruit high quality employees (by the methods used to reduce turnover of employees and absenteeism) and can limit our risk by dealing with experienced restaurant operator, we could require them to personally participate in business and restrict them until they‘ve proven themselves.
• Can structure the deal so that each franchisee is responsible for his own financing, so we can ensure our reputation.
• Since franchisees are restricted by our standard,  our reputation of  excellent food and high service standard will not be decreased.
• Because we will do the analysis but we don’t have the specific metrics to analyze the performance of the restaurants, so this is a weakness for us

Conclusion:

With our internal strength, we can have the least investment, a longterm agreement, gain reputaion, steady income and also have the loyalty of the franchisees. Of course, it take long time to have its best result and right now we need a good analyst.

The enternal strength make it more easy for us since our old rivals have not joined yet and our quality is ensured

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