A master franchise is a franchise relationship in which the owner of the franchise brand (the master franchisor) grants to another party the right to recruit new franchisees in a specific area. In exchange, the other party typically pays some price as well as agreeing to take on some or all of the responsibility to train and support new franchisees in their area. Because the role of a master franchisee within their territory is similar to that of a franchisor, they are often referred to as sub-franchisors.[1] As of , according to an in-depth survey of franchisors based in the United States, approximately 20% of franchisors use master franchising as an international growth strategy. According to the research, it is the most popular (either by itself or in conjunction with multi-unit development), method for U.S. franchisors to expand abroad.
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In general, a franchise enables a product to be dispersed across more outlets and regions, solving many geographic concerns raised by large market companies. It allows the franchisor to distribute its product or services with similar economies of scale to that of a large chain. The franchisor gives up the meticulous management of non-franchisor entities, but is still able to contain significant control over the look, feel, and branding of geographically dispersed individual businesses.
Generally, a master franchisor will grant the master franchisee, or subfranchisor, the right to third-party operations within a defined territory. And then, with respect to regional issues, the subfranchisor will assume the role of the franchisor, but they typically will not own or operate the franchise. They are removed from a direct management position. This duplication of the franchisor's role forms an additional layer of control in the general franchise system, which results in some small-scale inefficiencies on the small, local scale but greatly reduces the large-scale inefficiencies. Additionally, a master franchise allows the company holding the franchising permit to benefit from management talent and more and more accessible capital.
Combined, these two factors translate into almost instant penetration into the market and a competitive advantage, both of which increase system growth rates. Managerial levels and hierarchical framework exemplify one competitive advantage. By allowing the franchisor to specialize in recruiting, screening and training of subfranchisors, who then develop their area in a similar way, the overall growth rate of chains increases.[3] Other benefits include faster development, a more comprehensive financial base, specific expansion plans, access to capital and a regular cash flow, proximity to the customer, some independence, and the ability to address the demands of the customers as well as address the local competition.
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Although master franchising can be beneficial and advantageous, there are also setbacks, including legal problems and overly long contracts. One specific setback of master franchises is the increase in agency costs. Franchise agreements are needed to codify the enforcement of behavior. But, because all aspects of the franchise cannot be predicted, this requirement raises the opportunity for franchise shirking while reducing the overall ability to monitor all aspects of the franchise. Thus, some scholars hypothesize that "new franchise systems which employ master franchising are more likely to fail than are other new franchise systems."[4]
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Generally, the types of business that would adopt a master franchise model are domestic cleaners, fast food restaurants, computer equipment, real estate agencies, and convenience food stores.[5]
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When you first contact The Franchise Company, one of our consultants will arrange to visit you to carry out an initial review to establish whether international franchising could be the right path for your organisation. This is a mini feasibility study looking at all of the key aspects relating to how your business could potentially operate as an international franchise.
The process of creating an international franchise or expanding a current franchise is not one that can be undertaken lightly, and requires an investment of time and money to be successful in the long-term, but this initial stage is designed to give you a real indication of the potential for your business and its suitability for international franchising before making an informed decision to progress with the development project. If for any reason at this stage we don&#;t think your business is suitable for master franchising, we will tell you this and discuss the options for any further development.
Once we have established that franchising is a form of expansion that is suitable for your business and that you can create long-term success for both the franchisor and franchisees in an international franchise model, we can start to design your bespoke franchise model.
We spend time with your business and take an in-depth look at what makes your business tick. We&#;ll look into your marketing, operations, finances and more to understand the way in which your business currently operates, to give us the insight into your business that allows us to create successful franchise models. Throughout this process we will assess all aspects of the organisation to ensure that master franchising as a method of expanding into new markets is a viable and positive course of action for your business. We&#;ll provide territory analysis, financial models and fee structures for both the franchisor and franchisees to establish the best possible international franchise model for your company.
At the end of this development work we will recommend an international franchising model, based on how your business works, the areas and territories you want to expand into, and the level of control you as the franchisor want to maintain over your franchisees, plus the resources you have to maintain control if this is necessary. We design our models based on how to best create long-term success for both franchisors and franchisees. In international franchise models this means examining your target market and the suitability of your product or service to fit into this market in a way that has value for you, your franchisees and customers.
For more international department store franchiseinformation, please contact us. We will provide professional answers.