restaurant setup interior
restaurant setup interior

Hospitality franchising has quickly grown in popularity because it offers benefits to both parties. Abdul Kader Saadi, managing director of Glee Hospitality, weighs up the pros and cons of franchising.

Hospitality franchising has quickly risen in popularity because it inevitably offers benefits to both sides of the arrangement. The franchisee is able to create an opportunity to use a strong external brand to achieve an avenue to profitability and in turn the master franchiser is able to extend its market presence without having to directly oversee the day-to-day operations. However, comprehensively the true scope of benefits of a franchise are only truly realized if the master franchise has a number of factors in place which we will outline below.

In terms of pros the first visible benefit is the strength and profitability of brand recognition. If the brand is truly renowned then this takes the pressure of areas such as marketing budgets due to already existing brand awareness and loyalty. In other words big household names and internationally renowned brands are able to levy their market position to the franchisee that can more easily capitalize on the brand’s market strength. Another factor is to consider is the uniqueness of the concept itself. Brands that stand out and are sought out due to there being nothing else in the same niche in markets are prone to generate a level of interest and when supported by trademarked ‘’recipes’’ can generate a loyal/profitable market interest. Beyond the actual nature of the brand in question support from the master franchise in terms of staff training and operation manuals are paramount to the franchises’ success. When looking at brands on an international franchising scale, localization strategies none withstanding, there is level of quality of standards and services that are maintained, irrespective of the market in question. So if one were to travel throughout Europe for example, it is expected that a successful franchise such as McDonalds should have a consistent level of service and quality no matter the region in question. This level of standardized quality control is greatly enforced and strengthened by the amalgamation of a standard by a master franchise operation manual that is reinforced by the master franchise as previously mentioned.

In addition the application of a marketing plan that employs a go to market strategy or a GTM is another recipe for success when discussing franchise potential. For new unknown brands entering the market, their GTMs are based on predictive research but remain untested till they have run the course whereas with well established brands that possess years of operational success there is a strong market history and experience to fall back on. In other words the master franchises’ strong market presence and GTM success enable the franchisee to symbiotically apply this plan to their respective markets with a greater chance of success and market penetration.

Reflexively the franchiser/franchisee arrangement can pose a number of cons that arise due to the factors in the very nature of the arrangement. I some instances the franchise fees tend to be higher than the cost of developing a new concept itself. Therefore only it only becomes feasible if the brand has a profitable USP i.e. the brand has something unique to offer in terms of brand recognition, operational systems in place of even a secret recipe etc.

Another issue that arises from brands going international is that in many cases brands need to be localized. Many brands do travel well and will have setbacks translating to the local market and that is why major successful international brands employ solid localization strategies to compensate this. To put it simply you cant target different markets and demographics with the same cut and paste marketing campaign and household names such as Coca Cola and Kentucky Fried Chicken have really implemented the globalization aspect in international franchising. But as previously mentioned if the localization strategy isn’t successful or the brand hasn’t undergone any form of localization then problems can arise in the market perception and reception. Another con is the impact of the royalty fee implemented by the franchiser on the franchisee’s margins. The royalty fee is enforced as a percentage of sales paid for the lifetime of the project, which can range from 4% to 8% on turnover and in several cases this is applied without any legitimate support from the master franchise.

Another issue for the franchisee arises in terms of autonomy and freedom. For example in many cases any adaptation to the concept or marketing activities require master franchise approval, in laymen terms one often doesn’t own the rights to the brand as a franchisee and is bound to a standard ten year agreement which is auto renewable. Reflexively it can be observed in many franchiser/franchisee relationships that the key to success extends beyond the mere legal contracts in place and is paramount to a more operational/day to day adaptive relationship. Those franchiser/franchisee relationships that manage to find a balance between enforcing the master franchiser’s brand standards and allowing the franchisee a favorable degree of autonomy can expect to experience benefits in terms of operational output and profitability.

Presently, franchising is consistently growing into one of the more significant elements of the hospitality industry. With clear benefits to both parties in question it remains a lucrative method to market expansion and profitability. However there is the presence of certain factors that can hinder the perceived benefits on both sides of the spectrum that can be alleviated by the practice of a communicative relationship. This not only ensures a better path to autonomy and profitability but also encourages the maintenance of standards for both the product and services in question.