Franchising is defined as a business model wherein the owner of the business (franchisor) gives the independent operator (franchisee) the right to distribute his product, apply his business techniques and use his brand and/or trademark in the conduct of the business. With such a business model, the business owner can maximize their business’ profit potential in a shorter time compared to other more traditional business models. In franchise business, it is not only the products or service that the franchisee can avail; it is more of the system-the business plan of the chosen franchise.
It is fact that before franchise companies offer their business packages, they already conducted strenuous researches and studies to test the capability of the franchise to withstand the various factors that might affect the operation of the business. Simply put, franchise business offers a time-tested business plan. When entrepreneurs think of franchising, food is often the first thing that comes to mind. Most of the world’s biggest restaurant concepts are all franchised businesses.
This chapter focuses on study and literature readings of franchising business specially food franchising. Different report related to this research will help researcher educate themselves to the different aspect of purchasing a food franchise. Since 1950s, food establishments have quickly become the most popular sector in franchising. In U. S. as the nation’s economic environment hold steady, franchising continues to exhibit its positive influence.
According to William Rosenberg International Center of Franchising at the University of New Hampshire Whittemore School of Business and Economics, “Franchised Businesses create more value and perform better financially than their non-franchised competitors”. The study found that over the 10 year period, U. S. public restaurant franchisor have created more value than their non-franchising competitors. “Franchising firms minimize agency problems, and have access to cheaper capital, motivated managerial expertise, and better local market knowledge,” according to the report.
Franchising has grown so fast since the 1950s that it is now pervasive in different economy around the world. In study commissioned by the International Franchise Association, PriceWaterhouseCoopers estimated that in 2001 there were more than 767,000 business establishment in the United States engaged in franchising, providing directly or indirectly more than 18 million jobs, over $506 billion in payroll, and over $1. 5 trillion of output. Franchising now dominates certain sectors of the U. S. economy, over 56 percent of quick-sevice restaurants are franchises.
Franchising is also one of the fastest-growing U. S. xports, and it is now estimated that franchising will grow 12 to 14 percent per year in the future. The restaurant industry has earned a reputation for high risk and high rewards. Some industry analysts claim a dubious 90 percent failure in the first year. Franchise restaurants based on proven systems have a high success rate—about 62 percent over four years—than independent operators. In U. S. the average full-service restaurant in 2006 grossed $867,000. The restaurant industry is the U. S. largest employer after the government. The profitability of a food franchise always depends in their ability to provide satisfaction in their customers.
Research indicates that consumers have strong preference about choosing where to eat—with 62 percent saying they look for “environmentally friendly” establishments, 70 percent want offerings not easily duplicated in their home kitchen; and 83 percent express approval of healthier eating options at quick service eateries. The Success of food franchise can be put down to strong customer focus; franchisees are selected and entrusted with a loved brand and the quality of product and service is never compromised. It is necessary that the franchisor offers its franchisees a comprehensive franchise system, with maximum support and training.
Entrepreneurial Failure: The Case of Franchises”, by Steve Michael, a professor of business administration at the University of Illinois at Urbana-Campaign, concluded that “Franchisees are less likely to fail if they have been trained effectively by the franchisor”. Franchises with the best, most robust training programs have the most successful franchisees. The length of the training program was significantly tied to the chance of failure. Those franchises with the shortest franchisee training programs were more likely to fail. Those with longer programs were more likely to succeed.
Michael Newman, president and founder of ABC, based in Citrus Heights, California, agrees and says training of franchisees was paramount from the word “go”. “We realized very early on that everything is about training” says Newman. “Franchisees need good training in order to be successful out in the field. There are as many varieties of food franchises as there are types of foods. Investments can range from the very high end of hundreds of thousands of pesos for full-service restaurants, to a moderate capital outlay for vending machine.
There are franchises that specialize in sandwiches, barbeque, burgers, pizza, ethnic foods, candy, ice cream, smoothies and many other types of foods. Food franchising is most often associated with restaurants and it is the best franchise because food and eating remain constant. In Maslow’s Hierarchy of needs, survival needs is the first factor that man should satisfy. In here, nourishment of one’s body is essential, not just because man wants to eat but rather man needs to eat in order to survive. Aside from being a need for human survival, food is the best franchise to engage in because people spend much for food.
Plus, human choices of what kind of food or menu to offer are almost endless. Another good thing about food franchise is that, there are a lot of affordable franchise packages that will fit your capital. Entrepreneurs can select from food carts, which is a good start-up, or by kiosks and cafes. This type of food franchise do not require investors to dole out millions or hundreds of thousands pesos. Franchising has recently been named as one of the most outstanding and most successful business models in the country today.
It has become so popular that we now have more than a thousand franchise Philippines brands (from just about 50 franchising brands during the 1980s). No wonder, the Philippines is now being dubbed as the “Franchising Hub of Asia”. Food franchise here in the Philippines is a good earning potential since the products are usually affordable and the taste suits the Filipino taste buds. The very simple explanation for this is that Filipinos love to eat good food. Investors can put their franchise near the schools and universities, transport terminals and even within shopping malls.
They can place their franchise anywhere, provided there is traffic or consumers who willing to pay for good tasting meals. There is no doubt, that food business or franchise is a stable industry despite the greet hit of economic recession. Entrepreneurs likely to think that competition in food franchise is stiff. Yes, of course. But their edge depends on the quality and taste of the food. They have to make sure that they deal with the best franchise company who offer good food at good price. Food products should be clean, properly processed, and served in an appetizing way.
Naturally, man will spend good money for a great meal. So, it is a confirmation that food franchise can stay sturdy and growing even if other business entities face bankruptcy. Everyone can afford to skip buying latest gadget, but it is a sure bet that, they cannot afford to skip food. As long as there are people around, then food industry stays. Today, even if the economy is down, is still the best time to buy a food franchise. Food business in the Philippines is one of the best investments but it does not promise a 100 percent success.
Successful business often start with an idea an entrepreneur hatches, slowly builds up and takes to market. Planning and controlling often occupy the top of every aspiring businessman’s to-do-list before they even starts leasing space and producing products. As it turns out, there are always exceptions to the rule, even in business. Take for instance Edgar Injap Sia. For him, taking advantage of a great opportunity outweighs all the planning known to man, which why he took up a vacant mall in his hometown of Iloilo City without a plan on what to do with.
After a few weeks of conceptualizing, Sia decided to put up a restaurant offering an Illonggo staple called inasal in a ciy that was already teeming with versions of the same product. But due to his relentless work ethic, Sia’s Mang Inasal Restaurant became a critical and dominant success in the Visayas region in no time. After establishing a good foothold in that region, he then set his sights on conquering the holy grail of every Filipino businessman: taking his concept to Luzon, specifically the make-or-break capital city, Metro Manila.
I was not very familiar with Manila, because I was born and raised in Visayas. I only visited once a year, and it was usually for very short stays. So I knew I was in for a quite a challenge taking Mang Inasal to Luzon,” he said. Out of nowhere, Mang Inasal branches in Metro Manila had sprouted like mushrooms. Mang Inasal’s Founder Edgar Injap Sia shares the secret on making up in the big league. First, be brave and be hold. Second, innovate and start something new. Third, be ready for backbreaking work. Fourth, refuse to give up.
Fifth, go slow and steady. Sixth, join reputable organizations. Seventh, stand out. Eight, continue to look for opportunities. “Nothing is impossible with right attitude. Do not be intimidated by problems look at them as an opportunities for growth. That’s the entrepreneurial spirit of Mang Inasal’ Chairman and CEO, Edgar J. Sia II. In food franchise business commitment with the right attitude is one of the most important recipe. It is impossible to survive and succeed being a franchisee if you are not committed in your business.