A

SUMMER TRAINING REPORT

ON

FRANCHISEE MANAGEMENT
SUBMITTED TO:
N.R. INSTITUTE OF BUSINESS MANAGEMENT
GUJARAT UNIVERSITY
AHMEDABAD.
ON PARTIAL FULFILMENT OF 2 YEAR MBA
PROGRAM (2003-05 BATCH)
SUBMITTED BY:
JAINESH SHAH
ROLL NO. 3082
SUBMITTED ON:
22ND JULY, 2004.

ACKNOWLEDGEMENT

I would like to take the opportunity to express my profound thanks

to and gratitude to my guide - respected Mr. Devang Jhaveri (MD,
PUNYAM MANAGEMENT PVT. LTD.) for his unceasing efforts,
encouragement, help and valuable guidance at every step which has
contributed the most towards the success of this project.
I am also thankful to staff of PUNYAM MANAGEMENT for
giving their full support and providing me necessary direction for the
various topics related to the project.

Project student
Jainesh shah

II

EXECUTIVE SUMMARY
Today, in the global market, reputation and recognition of the business
is must, because competition of the businesses not only in the country but
also internationally. The prime objective of this

FRANCHISEE

MANAGEMENT is to find awareness of franchisee in the business sector

and to provide them necessary and correct information about the importance
of franchisee for business.
During this project, I have found that the business sectors in
Ahmedabad, which include Fast food restaurants, Jewelers, Readymade
garment shops, Furniture shops, Bakeries, Educational institutes, Mobile
networks, Automobiles, Super markets, Shoes industry, are aware of
franchisee management. After interaction with people managing these
sectors, I have come to know that many of them are ready to give or take
franchisee related to their field.
So, I can conclude that proper education and direction given to them
(Todays businessmen) towards benefits of franchisee can be helpful in
business sector. Franchisee management is the win-win situation that
includes responsibility of franchisor and franchisee to each other to improve
business function.

TABLE OF CONTENTS
ACKNOWLEDGEMENT....................................................................................................I
EXECUTIVE SUMMARY.................................................................................................II
ORGANAIZATION OVERVIEW......................................................................................1
RESEARCH DESIGN.....................................................................................................5
METHODOLOGY AND LIMITATION.............................................................................7
INTRODUCTION TO FRANCHISING MANAGEMENT...............................................9
BENEFITS TO FRANCHISOR....................................................................................12
BENEFITS TO FRANCHISEE.....................................................................................13
TYPES OF FRANCHISING.........................................................................................14
ABOUT THE PROJECT...................................................................................................15
FINDING OF THE RESEARCH ON VARIOUS INDUSTRIES.....................................16
APPENDIX SHOWING THE PLACES VISITED DURING THE FIELD WORK.....23
IDEAL FRANCHISEE MODEL.......................................................................................26
CRITERIAS TO DECIDE WHETHER TO GO FOR FRANCHISEE OR NOT.........26
FRANCHISEE SELECTION PROCEDURE..............................................................27
LAUNCH OF THE UNIT............................................................................................32
TERMS AND CONDITIONS FOR AGREEMENT....................................................33
LIVE PROJECT 38
BIBLIOGRAPHY.40

ORGANAIZATION OVERVIEW
PUNYAM (PMSPL) was born in November 1995 in the field of consultancy for ISO:
9000, other international standards, and Management areas. It is on the path of growth
and having total 250 clients of various types of certification and very rich experience in
ISO and management consultancy.
Group of 12 qualified engineers and management graduates (M.B.A), having experience
in different types of industries and having done ISO: 9001, 2000 and other international
certifications for many clients, are a part of this company.
PUNYAM is having its office in Vapi for clients located near Vapi as well as Mumbai.
At present, Punyam takes roughly 9 new clients per month and completes their work
within 3 months. After every 3 days, average 1 client of Punyam is getting ISO: 9001,
ISO: 14001, HACCP, CE Mark or any other certificate. All the Punyam clients have got
ISO: 9000 series certificate from the leading certifying body like KPMG, BVQI, SGS,
LLOYDS, DNV, TUV, U.L. LAB. Etc.
Punyam is also working for vendor Developments & Auditing of companies in India on
behalf of leading international customers. Their clients include capacity-wise No. 1
companies in Asia as well as leading groups of India like
Reliance Industries Limited.
Modern Terry Towels Limited. (Modern Group)
Gujarat Telephone Cables Limited. (GTCL Group)
Meghmani Group Of Companies
Metrochem Industries Limited
Shri Digvijay Cement Co. Ltd.
Binani Cements Limited.
INDEX B (Industrial Extension Bureau, Govt. of Gujarat Organization)

2
Pay back of their consultancy is less than 2 months because of quantification of
measurable goals and providing continual improvement platform.
PUNYAM IS COMMITTED FOR
Optimum charges.
To complete project in minimum period (Within three months).
Professional approach
To depute dedicated persons to suit client requirements.
Hard work and getting work done from others
Strengthening clients by system establishment to make their house in proper manner
Establishing system in finance and other departments for fund flow management.
To establish strong internal control with the help of system.

MANAGEMENT
They provide help to the clients in management areas listed below in four main ways.
Arranging in-house training programs.
Establishing system on project base.
Profit sharing based on improvement achieved.
They do total management activity.
a) SYSTEM CERTIFICATION
Reliance Industries Limited. ISO: 9001 (Quality System)
ISO: 14001 (Environment)
HACCP (Food Safety)
CE mark
WHO GMP
OHSAS:18001
BS 7799 ( Information Security Mgt. System)

3
SA 8000 ( Social Accountability)
NABL Accreditation (ISO/IEC 17025)
b) STRATEGIC MANAGEMENT
Competitive strategy
Organizational leadership for 21st century
Business Process Improvement (BPI)
Six sigma
c) MARKETING
International marketing
Market research
Managing retailing
Institutional marketing
Product policy & new product management
Franchisees management
Customer based business strategies
SWOT analysis and marketing plans
d) PURCHASE
Sharpening negotiation skills
Vendor development and evaluation
Supply chain management
System audit for vendors
e) PRODUCTION AND QUALITY CONTROL
Project management
Process refinement
Excellence in manufacturing
Quality assurance establishment

4
f) FINANCE
Creative solutions to finance problems
Advanced data analysis for financial decisions
Strategic finance management
Finance and costing for non financial staff
g) HRD
Human resource management
Leadership & change management
Key performance appraisal system (KPA)
Creative solutions to HR problems
Goal setting & performance management
Bench marking

RESEARCH DESIGN
PROBLEM STATEMENT
The management problem is to find out potential customers in the business sector who
wants to give or take franchisee and provide them necessary information and guideline
about franchisee agreement and importance of franchisee in business sector.

RESEARCH OBJECTIVE

How much business units are aware of the term Franchisee management?

What are the alternate growth policies that they are using for expansion?

What are the reasons that restrict them to go for franchisee?

On geographical basis, where their customers are located?

Describe the benefits that they are looking for, by giving franchisee?

What are their future goals?

On which criteria they select their franchisee?

Research Design:

Design strategy:
o Type: Exploratory research.
o Purpose: Mostly Descriptive
o Time Frame: Cross sectional.
o Scope: case study.
o Environment: Field research.

Data collection design:

o Type of Data:

In this area, not much research study has been conducted so far
and hence everything is to be explored with the use of primary

6
data. The tool that I used for collection of primary data was
Questionnaire and Personal Interview Method.

Secondary data about what is franchisee management, what are

its benefits, what are the criteria for selection of franchisee,
process of selection, etc. are obtained from a book on Franchisee
Management about which, it has been well mentioned in the
Bibliography at the end of this report.

o Questionnaires:

I did my market research with three types of questionnaires, one

for franchisor, one for franchisee and the third one for those who
have not given or taken franchisee till date but are able to give or
take franchisee.

I used more open-ended questions for first two types of

questionnaires

mentioned

above,

specially

designed

for

franchisor and franchisee to get information from them regarding

their business.

For the third type of questionnaire, which was for prospective

clients, I use more of close-ended questions to educate and guide
them about the concept of franchisee.

o Personal Interview method:

Interviews of small, medium and large-scale business units.

Interview of petrol pump holder.

Interviews of various corporate managers.

Sample design:
o Convenient sampling design method selected

METHODOLOGY AND LIMITATION

Research designs can be classified by the approaches and tools used to gather
primary data. There are rarely three or four alternatives. We can observe conditions,
behavior, events, people, or processes. Alternatively, we can communicate with people
about various topics. The communication approach is questioning or surveying people
and recording their responses for analysis.
The greatest strength of questioning or conducting a survey, as primary data
collecting technique, is its versatility. Questioning is much more economical than
observation. A few well-chosen questions can yield information very easily that would
take much more time and effort to gather by observation.
The questioning technique has its shortcoming. The major weakness is that the
quality and quantity of information secured depends heavily on the ability and
willingness of respondents to cooperate. Often, people refuse and fail to reply to a mail
survey. Certain people at certain time fail to see any value in participation; they may fear
the interview experience for some personal reason; or they may view the topic as too
sensitive and thus the interviews are perceived as potentially embarrassing or intrusive.
Even if respondents do participate, they may not have the knowledge sought or an
opinion formed on the topic of concern. Under these circumstances, their proper response
should be dont know or no opinion. Too often respondents feel obliged to express
some opinion even if they do not have one. In those cases, it is difficult for researchers to
know how true or reliable the answer is.
Respondents may also interpret a question or concept differently from what was
intended by the researcher. This occurs when the respondent is answering a question
different from the one being asked. A respondent may intentionally mislead the researcher
by giving false information. It is difficult for a researcher to identify these occasions.
Despite these weaknesses, communicating with research subject is a principal method of
management research.

LIMITATIONS OF THIS METHOD

Non response rate: When people dont want to participate
Response error: When they interpret differently and cant find answer accurately
Interview error: It occurs when interviewer fails to achieve cooperation, interview
has been taken with bias.
Costs: Organization has to make interviewers some kind of payments like travel
costs, and some allowances.

FRANCHISING MANAGEMENT
Definition:
The word franchise is an old term, originating from the French word
meaning privilege or freedom or a right. Thus, the rights for hunting,
holding public fairs, agricultural activities, etc. were started being known as
franchises.
FLOW OF INFORMATION

Need:
The distribution industry was used to the
dealers and retailers, both exclusive and nonexclusive. This was working perfectly for the
distribution of products. But, with the fast
growth of the service industry, there was a
dire need for finding alternate distribution
channels. For that, franchisee is the best
vehicle for expanding network.

FACTORS AFFECTING ON FRANCHISEE MANAGEMENT

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Limitations:
A little literature available, which laid down the precepts of
franchising. There are not so much existing franchise networks in the
country, which could be studied and adapted.
A framework does not always suit the requirements of international
expansion. What works in India doesnt necessarily work everywhere
else.

Success factor:

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To form the basis of a mutually beneficial and enduring relationship, it is vital to ensure
that both the parties understand their rights and responsibilities to work in unison for
success of the business. Success of franchisee lies in managing efficiently its brand as
well as product.
BRANDMANAGEMENT

PRODUCT MANAGEMENT

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BENEFITS TO FRANCHISOR
Expansion without capital investment:
It may not always be possible for an organization to deploy capital
for simultaneously setting up units in different geographical
locations. Through franchising, several franchisees can
concurrently invest in setting up different units, thereby rapidly
expanding the network for the franchisor.
Increase in market share:
Franchising offers the concerned parties a mechanism to penetrate
a market and achieve a large market share in a short time.
Low cost of franchisee:
Once the concept is fine-tuned, the cost involved in setting up
additional franchisees is minimal.
Profitability increases:
As compared to the cost, the returns emanating from each unit are
substantially higher, thus ensuring highly attractive per unit
profitability.
Limited risk factor:
With the franchisee investing the capital, the franchisors risk is
limited in the event of the failure of the unit.
Availability of a large number of entrepreneurs:
The franchisee is a committed and dedicated entrepreneur whereas
a salaried employee will rarely show similar commitment and
dedication. It is a well-known fact that no form of compensation
is greater than entrepreneurship.

13

BENEFITS TO FRANCHISEE
Less amount of risk involved:
The risks normally associated with a start-up business are few because
under franchising, there are little chances of failure of the business.
Training of business practices:
The franchisee has access to training from the franchisor in business
practices that have been successful elsewhere.
No R&D and product development expenditure:
It is not possible for a small single business unit to make large
investments in these areas. In fact, they can earn reward from
investment made by franchisor and it will continue to invest in.
Transfer of know-how:
A proven business know-how is the biggest benefit for franchisee.
Economies of scales:
The network is also able to leverage on the economies of scale of a
large organization and give substantial cost saving on material,
equipment, media etc.
Expenditure on advertising and promotion decreases:
The synergy of operations that franchising ensures amongst the
network of franchisees, reduces advertising expenditure at a per unit
level.

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TYPES OF FRANCHISING

Franchising
Product Franchising

Process Franchising

Business Format Franchising

Product franchising :
It is prevalent in the finished category of products and implies the
right to sell the product as it is received from the parent company. The
only value-addition that happens at the franchise outlet is in terms of
display, which facilitates easy accessibility of the product to the
customer and the actual sales transaction. Hence, product franchising
is only applicable for the sale of a product.
Example: Car dealership

Process franchising :
As opposed to product franchising, process franchising is a little
more complex. Here, the franchise outlets are granted the rights to the
brand name and the process, by the parent organization. The process
or the recipe may be patented by the parent organization and the
franchise outlet has the right to use the process and sell the product
under the parent organizations name.
Example: Food industry

Business format franchising :

It is a more comprehensive type of franchising where the name, sale
and the method of doing business are transferred to the franchise
outlet. The transfer of knowledge for conducting the business has to
be accompanied by an effective follow-up mechanism by the parent
organization.

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Example: McDonalds

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ABOUT THE PROJECT

I started my project from 24th May. As stated earlier, Punyam management services is
basically an ISO and management consultancy which is to enter in a field of franchisee
consultant. I was given a project of franchisee management. First week was allocated to
understand theoretical framework of franchisee management as well as to understand
terms and conditions that apply in franchisee. I was given a task to make PowerPoint
presentation of franchisee concepts for companys own use. In the second week I
submitted that presentation and started to prepare questionnaire. I started my fieldwork
from the third week with one questionnaire. During that week, I updated my
questionnaire and made another two questionnaires according to the response that I got
from the market. So I did my market research with three types of questionnaires as has
already been mentioned in the data collection design: one for franchisor, one for
franchisee and the third one for those who have not given or taken franchisee till date but
are able to give or take it. I used more open-ended questions for first two types of
questionnaires specially designed for franchisor and franchisee to get information from
them regarding their business. For the third type of questionnaire, which was for
prospective clients, I used more of close-ended questions to educate and guide them
about the concept of franchisee. I completed my fieldwork in seven weeks and after that
one week was given for analysis of questionnaire and to make project report.

17

FINDINGS OF THE RESEARCH ON FRANCHISEE

Industry:
Garments
Awareness
Geographical
Expansion policy
Benefits perceived
Criteria for selection
Restricting factors, if
any
Alternative Growth
Policy
Market concentration

Very much aware

Regionally as well as domestically
Brand name popularity
To increase market share
Expansion without capital investment
Site availability
Investment availability
Past experience
Low profitability
Personal selling
Advertising
Scattered

SWOT Analysis of garment industry:

Strength:
All types of variety are available in a market for different taste of
consumers.
Behavior of staff with customers makes repeat purchase possible.
Weakness:
Not a single company is able to provide all ranges of items.
Bargaining habits of customers imposes restriction on fix rate sellers.
Opportunity:
Non Residential Indians (NRIs)
Festivals like Diwali, Rakshabandhan etc.
Threat:
Tough Competition
Present trend regarding franchisee:
Garment is the highly emerging industry for the purpose of giving franchisee in
Ahmedabad. Raymond had started of giving dealership, which is the primary form of
franchisee. Nowadays customers value time and money and Raymond is only providing
tailor-made garments. That is why Raymonds market share is decreasing day by day.
Allen solly, Van Heusen, Planet fashion, Louis philippe are the companies that provide
readymade garments and are capturing market by giving franchisee. Location of an outlet
is the sole criteria in giving franchisee.

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Jewelers

Industry:
Awareness
Geographical
Expansion policy
Benefits perceived
Criteria for selection
Restricting factors, if
any
Alternative Growth
Policy
Market concentration

Not much
Locally
Expansion without capital investment
Persons credibility
Past experience
Very difficult to control
Internet marketing
Personal selling
Scattered

SWOT Analysis of Jewelers:

Strength:
Varieties in design, size and types
Good service attracts loyal customers
Weakness:
Customers require more money to purchase jewelry than their routine
purchases hence ATM or banking facility requires in surrounding
environment of the site.
Opportunity:
Marriage season
Threat:
Security aspect
Present trend of industry regarding franchisee:
Jewelry industry requires high investment for taking franchisee hence people avoid to
take franchisee and go for their own shop. On the other hand, franchisor does not want to
take risk by giving franchisee to even a known person due to high chance of vulnerability.

19

Fast-food

Industry:
Awareness
Geographical
Expansion policy
Benefits perceived
Criteria for selection
Restricting factors, if
any
Alternative Growth
Policy
Market concentration

Yes
Locally and regionally
To increase market share
Availability of a large number of entrepreneurs
Entrepreneur capability
Lead time require to start the franchisee
Create competitors in future
Advertising
Centered

SWOT Analysis of Jewelers:

Strength:
Tasty food.
Change from routine food.
Weakness:
Not prefer in rural market.
Unhealthy and unhygienic food
Opportunity:
Youth.
Threat:
Tiffin services.
Present trend of industry regarding franchisee:
Fast-food industry is also highly emerging industry same as garment industry in
Ahmedabad. It requires less investment but technical know-how is the crucial factor for
giving franchisee. Sankalp is one of the best examples of restaurant franchisee. A group
of Sankalp includes U.S. Pizza, Saffron, Salt n paper and Sankalp restaurant itself.
Sankalp has already given franchisee in Jaipur, Udaipur, Baroda, Surat, Rajkot and more
than two franchisees in Ahmedabad. Still they maintain same taste everywhere.

20

Educational Institute

Industry:
Awareness
Geographical
Expansion policy
Benefits perceived
Criteria for selection
Restricting factors, if
any
Alternative Growth
Policy
Market concentration

Yes
Locally
To make brand name popular
To increase market share
Availability of a large number of entrepreneurs
Entrepreneur capability
Lead time require to start the franchisee
Create competitors in future
Advertising
Centered

SWOT Analysis of educational institutes:

Strength:
Tutors are the sole strength of institutes.
Weakness:
It can cover only limited area.
Opportunity:
Vacations and exam time
Threat:
Personal coaching
Change in the syllabus
Present trend of industry regarding franchisee:
A success of educational institute depends on its faculty members. It is tough to find
equally qualified tutors at all places of franchisee, due to this franchisee is not preferred
in educational institute. If franchisee is given to nearer place of franchisors location then
it may be possible for the same tutor to cover all the students in a particular area. But it
will not make any sense to have franchisee in a same area since it leads to cannibalization
(your own franchisee competes with your institution and effectively speaking it is simply
as if a transfer of students from one batch to another).

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Shoes

Industry:
Awareness
Geographical
Expansion policy
Benefits perceived
Criteria for selection
Restricting factors, if
any
Alternative Growth
Policy
Market concentration

Very much
Locally, regionally and domestically
Low cost of operation
To increase profitability
Entrepreneur capability
Lead time require to start the franchisee
Create competitors in future
Advertising
Personal selling
Centered

SWOT Analysis of shoes industry:

Strength:
Varieties
Weakness:
Bargaining power of customers put restriction on fix rate sellers
Opportunity:
School uniform
Threat:
Obsolescence of design

Present trend of industry regarding franchisee:

It is an evergreen industry; hence franchisee is very popular in this field. People are using
popular brands name for their own outlet. For example, brand name CHAVDA is so
popular in Ahmedabad that there is minimum one outlet with the name of CHAVDA in
each area of Ahmedabad. There are three outlets with this name even on C.G. Road. The
industry where the brand name is such a way critical success factor, franchisee is found to
be one of the most suitable as well as the profitable management practices.

22

Bakery

Industry:
Awareness
Geographical
Expansion policy
Benefits perceived
Criteria for selection
Restricting factors, if
any
Alternative Growth
Policy
Market concentration

Not much
Locally and regionally
To capture more market
Low cost of operation
Technical know-how
Ability to work as an operator, now owner
Create competitors in future
Very much difficult to control
Advertising
Centered

SWOT Analysis of Bakery:

Strength:
Technical knowledge
Weakness:
Perishable products
Opportunity:
Working couple
Threat:
Modernization

Present trend of industry regarding franchisee:

Sales cycle is the fastest one in this industry as it requires faster production as well as
supply. To maintain same quality, by maintaining speedy operations, makes franchisee
management tough in this field. In spite of that, Cakes n Bakes is performing
efficiently by giving its franchisee in Ahmedabad. It has given franchisee in areas like
Ambawadi, Maninagar, Gurukul, Satellite, Paldi and Naranpura, It produces all the items
centrally and then supplies them to all its outlets. That shows good potential of franchisee
in this field, even though not too many such other examples have been found as yet.

23

Cold drinks and ice cream parlors

Industry:
Awareness
Geographical
Expansion policy
Benefits perceived
Criteria for selection
Restricting factors, if
any
Alternative Growth
Policy
Market concentration

No
Locally
Low cost of operation
To increase profitability
Goodwill
Location
Low profit margin
Technical know-how
Advertising
Personal selling
Centered

SWOT Analysis of cold drinks and ice-cream parlors:

Strength:
Goodwill
Location
Weakness:
Low Margin
Opportunity:
Various flavors
Threat:
Much stiffer competition

Present trend of industry regarding franchisee:

Low profit margin and high wastage due to perishablity impose restriction on franchisee.
Girish Colddrinks has more than three own branches in Ahmedabad but not a single
franchisee is given. Location of the site and goodwill are the crucial factors in franchisee
selection.

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Automobile

Industry:
Awareness
Geographical
Expansion policy
Benefits perceived
Criteria for selection
Restricting factors, if
any
Alternative Growth
Policy
Market concentration

Very much
Locally, regionally and domestically
Limited risk factor
To increase profitability
Ability to invest
Site availability
Chances of spoiling brand image in the market
Dealer/Distribution network
Advertising
Personal selling
Centered

SWOT Analysis of Automobiles:

Strength:
Low maintainability
Mileage
Weakness:
Dependent upon petrol-diesel which are scarce resources and are quickly
being depleted and getting costlier progressively
Opportunity:
Creativity
Gas driven engine
Threat:
Model failure

Present trend of industry regarding franchisee:

Because of the level of investment required and the complexity of manufacturing process
of automobiles the question of franchisee does not come into the picture in case of
production of automobiles. However, when we use the term automobile industry, it
covers large Meta market of various sub industries such as auto ancillary, auto dealers,
financing of automobiles etc. By using this term, I mean to convey the meaning of
automobile showrooms and automobile financing. In both these areas franchisee has
already become very popular.

25

Mobile Network

Industry:
Awareness
Geographical
Expansion policy
Benefits perceived
Criteria for selection
Restricting factors, if
any
Alternative Growth
Policy
Market concentration

All are aware

Locally, regionally and domestically
To capture more market
Low cost of operation
Prior experience
Ability to work as an operator, now owner
Create competitors in future
Very much difficult to control
Advertising
Dealer / distribution network
Scattered

SWOT Analysis of mobile network:

Strength:
Makes the use of Mobile phone possible
Various facilities provided like free sms, chatting, ringtones, R world,
fortune telling, current affair news, games, music composer, etc.
Cost keeps on reducing and becoming affordable more and more
Can also be used as a residential phone
People worrying about their family members outside value mobile most
More and more used in marketing of products
Inbuilt caller ID function
Can be connected with internet
Weakness:
Frequent recharging
Dummy possession, ownership and usage
Physical security from thieves and possibility of misuse by so called
friends
Opportunity:
Innovative models like camera inbuilt
Need creation (Many facilities are such which create needs from nowhere
and people make them as their habits which is difficult to control
afterwards)
Threat:
Mobile virus

26
Present trend of industry regarding franchisee: Though it is strange to know but it is
true that even in mobile network industry, the franchisees are becoming a newly
emerging phenomenon.

APPENDIX SHOWING THE OVERVIEW OF PLACES

VISITED DURING THE FIELD WORK
Garments
Pantaloon, Elsbdg
Bodyline,CGrd
Radhika, Elsbdg
Westside, Elsbdg
Adani Collection(Reid & Taylors fr),CGrd
Tanvi Collection(Akobas fr)Elsbdg
Vimal (Reliances fr), CGrd
Greenfibre,Mngr
Planetfashion(Allensallys fr),CGrd
Shoppers paradise(Digjams fr), CGrd
Mafatlal family shop,Mngr
Amruta(Allensallys fr),Mngr
Gopal Emporium,Mngr
Adani (Raymonds fr),CGrd
Gulabdas saree,Mngr
Shrinath selection,Mngr
Shriniketan,CGrd
Fast food & Restaurants
Sankalp (Franchisor),CGrd
Sankalp (fr),Mngr
Saffron (Sankalps fr), Mngr
Honest Bhajipav(fr),Pldi
Honest Bhajipav,Mngr
Prince Bhajipav,Isnpr
City corner Bhajipav,Nrnpr
U.S.Pizza,Nvrngpr
Khana Khazana,Sttlt
Khana Khazana,Pldi
Udipi Caf,Pldi
Rasranjan(Franchisor),Unird
Rasranjan(fr),Mngr
Rasranjan,CGrd
Choice snacks bar, CGrd
Treat,Pldi

Bakery
Cakes n Bakes(Franchisor),Nrnpr
Cakes n Bakes(fr),Grkl
Italian Bakery,Bhadra
Rajkamal,Mngr
Janta,Gndhrd
Asian,Isnpr
Beekey,Cgrd
Cold drinks and Ice-cream Parlor
Girish cold drinks, CGrd
Girish cold drinks,Mngr
Girish cold drinks,Mnchwk
Farki,Mngr
Farki, Delhi Darwaja
Asharfi,Unird
Havmor,Panchwati
Janta Ice-cream,Nvrngpr
Janta Ice-cream,Mngr
Patel Ice-cream,Mngr
Patel Ice-cream,Nvrngpr
Jewelers
Monica Jewelers, Mngr crossing
Manisha Jewelers, Mngr station
Shoes
Liberty show room, CGrd
Bata (fr), Mngr
Chavda,CGrd
Chavda Shoe co.,CGrd
Chavda pagarkha, Mngr
Dollar,Sttlt
Krishna footwear,Nrnpr
Payal footwear,Mngr

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Tomatos,CGrd
Chinatown,Nvrngpr

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IDEAL FRANCHISEE MODEL

CRITERIA TO DECIDE WHETHER TO GO FOR FRANCHISEE OR
NOT
Are the customers making repeat purchases of the product?
Has the product been successful in other market segments?
Is there a need for the product/service to be available at different
locations/markets?
Are all the units selling the product profitably and independently?
Can the same product be sold in different markets without changes or
modifications
In financial terms, have the different outlets achieved break-even
status in 12 to 18 months?
Is the return on investments (ROI), which is being generated from
each outlet, acceptable to the franchisee as an investor?
Are all the outlets similar in appearance in terms of both exteriors and
interiors?
Can a new unit be set up at a different location in less than a year?
Does the customer associate the brand with the product?
Is there an awareness of the brand among consumers in the markets
where the current outlets operate?
Is there any awareness of the brand among consumers in new
markets?
Is the brand available in different formats for advertisements,
packaging, letterheads, stationary, etc.?
Is the brand registered in the existing and future markets?
Can a third person set up an outlet by studying the documentation?
Is the training requirement for the outlet clearly defined?
Is adequate training material readily available?
Using the documented system, can the outlet operate independently
for 30 days, without any input from the parent organization?
Are adequate controls available in the system to prevent nondisclosure of income?
Does the system give adequate feedback to the parent organization
regarding the product performance and customer satisfaction?
Does the system have inbuilt procedures to trap customer complaints
and take care of recurring complaints?
Does the system ensure legal compliance of all local, state and federal
laws?

29

FRANCHISEE SELECTION PROCEDURE

STAGE I ADVERTISING
A standard advertisement format has to be created so that it can be used in
different print media with simple modifications. The size, layout and design
of the advertisement are best decided by individual organization in
consultation with its advertisement agency.
ADVERTISING MEDIA

Newspapers
Magazines
Technical and trade journals
Radio / television
Investor trade chambers clubs
Qualified databases for direct mailing

CONTENTS OF ADVERTISING

Product details with data on success / sales

Company details with the parent organization details
A profile of the potential franchisee
Broad investment requirements for the project
Locations where franchisees are being sought
It should sign off with the brand logo and the address and contact
details of the franchisor.

SCREENING OF APPLICATIONS

Following applications should be rejected directly.

Who have too many businesses?

Who do not have succeeded in other businesses?
Who will not devote full time attention to the new business?
Who are relying on 100 % funding through borrowings and loans?

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STAGE II

FRANCHISE BROCHURES

After screening of applications in stage-I, franchisee brochures are sent to

remaining potential clients. It is essentially a corporate brochure for the
organization and should reflect its strengths, image and vision. It can contain
testimonials from successful franchisees with photographs of their respective
outlets. It is essentially a franchisee recruitment brochure which contains
answers to all possible queries of the prospective franchisees.

SCREENING OF APPLICATIONS

In this stage, applicants are short listed by doing objective assessment. Each
criteria of objective assessment is given specific weight according to its
importance. This weight is differing from industry to industry. For an
example, generally site availability criteria requires the highest weight while
an educational qualification requires least weight. But again, how much
weight should be allocated to each criterion depends on types of business.
CRITERIA OF OBJECTIVE ASSESSMENT

Ability to invest
Site availability
Entrepreneurial capability
Education
Past experience
Lead time required to start the business

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STAGE III PRESENTATION

If the response to franchise brochures is very good and there are a large
number of interested prospects from whom the franchisor has to select the
best franchisee, the presentation can be done in a group. It should be in the
form of corporate video or a multimedia presentation. The presentation can
be followed by a question and answer session.
SCREENING OF APPLICATIONS

In addition to the rating of an objective assessment, the behavioral aspect

should also be taken into consideration. It includes behavioral criteria and
those should be assessed using professional advice, if needed.

BEHAVIORAL ASSESSMENT

(Psychology test)
Motivation:
What is the motivation for the prospect to seek a franchise? A proper
understanding of the prospects motives will help the franchisor to
assess the franchisees long-term interest in the project and his ability
to make it a success. He should be guided by a strong motivation,
related to financial or emotional factors or to his self-esteem. The
stronger the motivation, the higher are the chances of the prospects
success.
Involvement:
Is the franchisee going to be an owner-cum-operator or is he going
to rely on hired hands to operate the franchise? If the owner was not
involved in the operations himself, his commitment and
entrepreneurial skills, which are the backbone of any franchising
operation, are not available to the franchisor for the business. Hence, a
franchisee that will not operate the unit himself should be avoided.

32

Self-evaluation:
The franchisee should be encouraged to do a self-evaluation in order
to determine whether he will be successful as a franchisee. This
imparts a lot of confidence to the franchisee about the sincerity of the
franchisor and helps him to make up his mind.
References:
Before finally selecting the franchisee, the franchisor should check the
references of the franchisee. The franchisee should be asked to
provide three references: two business references and one bank
reference. In addition to the references provided by the franchisee, the
franchisor can also elicit information from other business contacts in
the area.

33

STAGE IV SITE SELECTION

Once the franchisee is selected, the next step is to select the site. Many times
the selection of the franchisee is determined by the site he is able to provide
for the outlet. For most consumer businesses, the site is crucial for success
and the location becomes very important. Depending upon the nature of the
business, the franchisor has to draw up the specifications for an ideal
location and the site.
SPECIFICATIONS FOR AN IDEAL LOCATION:

Demographics of the population around the location

Commercial, industrial, recreational and educational establishments
around it
Accessibility of the location to the customers
Visibility to customers
Type, direction, density and qualifications of the traffic which passes
from that location daily.
Buildings suitability to the business
Area, facilities and utilities required
Layout, the frontage available to put up the signage and parking
available for customers.
A site evaluation form, similar to the franchisee evaluation form is
used for assessing the suitability of the available locations. The site
evaluation form gives ratings to each of the factors mentioned above
and assigns weightages to them to arrive at a final rating for the site.
This allows for an objective assessment by the franchisor, helping him
to select one of the many possible sites for locating the franchise.

34

LAUNCH OF THE UNIT

A proper launch of the unit generates awareness about then outlet in

the area hence acts as a morale booster for the franchisee.
Before the launch, marketing and sales activities need to be started in
the area.
Handbills, posters, banners, newspaper inserts, print advertisements,
radio jingles etc can be used according to type of the product.
The day of the launch should be advertised in the local media that
attract potential customers.
The event could be a seminar, a music show or a cultural event. It can
feature an eminent personality who can attract crowds.
The event and the launch should be adequately covered by the press
so that it generates awareness in the area.
On the launch date should also announce a special promotion drive at
the unit with discounts or promotional offers.
The start of one more units may not be of significance for franchisor,
but for the franchisee, it is an important day in his life.

35

TERMS AND CONDITIONS FOR AGREEMENT

Prerequisites of agreement for franchisor

Disclosures related to bankruptcies and lawsuits in his past including
all affiliated companies.
Disclosure regarding whether the initial franchise fee is uniform.
Investments details should be realistic and should give information
about key investments and expenses.
Franchisor should give details of franchisees that have made money.
An agreement should be balanced means franchisor should avoid the
tendency to make the agreement heavily in favor of the franchisor.

36

GENERAL GUIDELINES FOR AGREEMENT

Recitals:
A definition of all terms used in the agreement is given here. This is
also the part, which specifies the unique proposition which the
franchisor has and which he is franchising. The intellectual property
rights and trademark rights of the franchisor are clearly spelt out here.
Tenure:
The period of the franchise contract is spelt out here. The terms for
renewal of the franchise agreement upon expiry of the period are also
clearly stated in this section of the agreement.
Territory:
The geographical area in which the franchisee is allowed to operate
exclusively is specified here. It may be necessary to attach maps with
the areas clearly marked out.
Operations of the franchisee:
If the franchise outlet needs to comply with quality standards like ISO
9002, clear guidelines and time schedules for achieving certification
should be specified.
Termination and Expiry procedures:
Termination in case of breach of agreement and sale of franchise to other
parties should be laid down. During the term of the contract, provision for
penalties can also be made in case of breach of contract. The agreement also
deals with standard clauses related to the death of the franchisee, and
renewals of agreement and indemnity against acts of unforeseen nature like
earthquakes, floods, riots, etc.

37

FRANCHISORS OBLIGATION
This section should be clearly worded and should match the promises made
in the franchise offering circular. The main aspects to be covered here are
listed below.
Training:
This should include information on the number of people, where and
when they are undergoing training as also the duration and nature of
the training. The initial training is undertaken at the cost of the
franchisor, whereas ongoing and future training is normally
undertaken at the franchisees cost.
Advertising:
This refers to the contribution of the franchisor towards brand
promotion in the territory. Normally all outlets (including the
franchisors owned outlets) are expected to contribute equally for
advertising in the territory.
Information:
The franchise agreement should also provide relevant and timely
information to franchisees and respond to all reasonable requests from
the franchisees concerning the business.
Supply conditions:
This refers to details of items that will be supplied by the franchisor
with an indication of costs.
Manuals:
These have to be issued to franchisees for the conduct of the business
and regular updating of the manuals is a must. It should be specified
here that the manuals are and shall remain the property of the
franchisor.

38

FRANCHISEES OBLIGATIONS
This section should specify all the things that a franchisee should do to run
the business properly and to protect the rights of the franchisor. All aspects
pertaining to the items listed below should be covered.
Manpower and training:
All recruitment by the franchisee should be approved as being
competent by the franchisor. New employees should be allowed to
function only after receiving proper training from the franchisor. The
franchisee should also be obliged to get all his employees trained in
the future as and when required by the franchisor.
Registration and authority:
The franchisee is authorized to operate as the franchisee and not as a
branch or as an agent of the franchisor. All literature, stationery and
displays at the location should use the text as specified in the manuals
supplied by the franchisor.
Brand name protection:
The brand name or the trademark should not be changed or damaged
by the franchisee.
Secrecy:
The know-how, system, methods and all other information provided in
the manuals and future updates should be kept secret and should not
be divulged to any third party. The franchisees should be asked not to
copy the manuals in any part.
Business performance:
Performance targets can be mutually discussed between the franchisor
and franchisee and finalized from time to time. Mention should also
be made about the performance expected from the franchisee
regarding the quality and levels of service pertaining to the product.

39

Accounts, audits and financial performance:

The books of accounts can be audited by the franchisor. Here the
periodicity and scope of the audit as well as the party at whose
expense the audit will be conducted should be clearly stated.
Taxes:
If the franchisee is supposed to comply with local tax statutes like
sales tax, VAT, service tax, etc. the same should be specified and the
franchisee should be obliged to comply with them and provide the
relevant financial details to the statutory bodies and to the franchisor.

MASTER FRANCHISE AGREEMENT

Master franchising is very common in international franchising, wherein the
brand name of the franchisor is not well-known in a new country. A
franchisee willing to set up a franchise outlet in a new country will have to
make huge investments in generating awareness for the brand in the country.
In such a case, the franchisee expects to be given the territorial rights in the
country for appointing sub-franchisees.
If a master franchisee is given the rights to sub-franchise in a territory, a
separate master franchise agreement should be drawn up, which is different
from the franchise agreement. Once the master franchise rights for a territory
are awarded, the franchisor normally cannot sell a franchise in that territory
directly, as the rights are exclusive in nature.

40

LIVE PROJECT
I got an offer from CHAVDA PAGARKHA while market research to make their
agreement for giving franchisee. An overview of an agreement with terms and conditions
is given below.

Agreement of CHAVDA PAGARKHA

A location of a shop should be at a place where there should not be other
CHAVDAs shop in surrounding 3 kilometer of radius.

Initial fee for franchisee would be Rs. 3 lacks.

Interest on deposited amount will be paid as per nationalized banks interest rates.
Insurance expenses will be shared by both the parties in a manner of 70% by
franchisee and 30%by franchisor.

Advertisement expenses will be shared in a 50-50% form. Advertisement will be

given in a company newspaper, magazines, channels and local newspaper.

Submission of sales data will be done on each Monday with a statement including
article no, color, size, and price.

Stock amount will be as per 80% of deposit.

Manuals are and shall remain the property of the franchisor.
All recruitment by the franchisee will be approved by the franchisor.
Training schedule will be announced two weeks before of the training date. That
schedule includes number of people who will be given training, where, when,
duration and nature of the training will also be specified.

New employees will be allowed to function only after receiving proper training.
All literature, stationary and displays at the location will use text as specified in
the manuals supplied by franchisor.

The franchisee is authorized to operate as a franchisee and not as a branch or an

agent of the franchisor.

41

A franchisees profit margin will be equal to retail price minus wholesale price of
franchisor.

The performance targets will be changed time to time.

Clearing will be done two times a year through sale in February and August.
Minimum distance between two franchisees will be 6 Km.
Franchisee cant sale other companys items.
The brand name or the trademark should not be changed or damaged nor any
derivates of it formed in the name of the franchisee.

A company will provide support activities like a companys representative will

inspect time to time and give advices regarding how to increase sales, stock
maintenance, order etc.

Minimum duration of the contract remains 3 years.

In case of renewal or termination of contract last 3 months stock can be sent back
at wholesale price or all the stock can be sent back at 50% of wholesale price.

Octroi and transportation charges will have to bare by franchisee.

If dispute has reached a stage where it cant be resolved through mutual
discussion and meetings then mediators and arbitrators help will be taken to
resolve the matter.

42

Bibliography:

Kotler, Philip, Marketing Management. New Delhi : Prentice-Hall of India

Private limited, 2003. 706pp.
Khera, Pramod, Franchising The Route Map to Rapid Business Excellence, New Delhi:
Tata McGraw-Hill Publishing Company Limited,2001,150pp.
Hoy, Frank.,Stanworth, John.,Franchising An International Perspective, New Delhi:
TMH, 2003,200pp.
Cooper,Schildler.,Business Research Methodology, New Delhi : Tata Mc Graw-Hill
Publishing Company Limited, 2001, 455pp.