Having being exposed to a variety of franchise structures to date, I now tend to think of a franchise business model as being more about a spectrum than a single choice of commercial operation.

At the far left-hand end of this spectrum is what I term a “Buying Group”, in the middle is what I term a “Franchise-Cooperative” and at the far right-hand end of the spectrum is what I term a “Pure Franchise”.

A) Some of the Typical Key Features of a Buying Group –

  1. The main benefit for a franchisee belonging to a Buying Group is the opportunity to take advantage of buying at competitive price points from carefully selected suppliers. Commonly, such suppliers are categorized as being “Approved Suppliers” or “Preferred Suppliers” or “Strategic Partners”.

  2. Franchisees have a high level of autonomy (freedom) to choose to engage with suppliers which offer the most benefit to their particular Franchise business unit. The legal agreement which defines the operating expectations of Franchisees is often not rigidly structured and features language such as “elective”, “not mandatory” and “right to choose” throughout.

  3. Buying Group governance isn’t too concerned about achieving a well-honed/ streamlined and united operation. Rather, it’s mostly about connecting with suppliers who can deliver the right product at commendable price points.

  4. It is very difficult to influence Buying Group Franchisees to move from a “Buying Group” mindset to instead operate more towards the “Pure Franchise” end of the franchise spectrum. Mainly because such individuals tend to view such a transition as equating to a loss of freedom to choose and erosion of their independence/ autonomy.

  5. There is little control over how the company brand is applied/ used by Franchisees, which therefore exposes the company to the possibility of one or more Franchisee using the brand in ways that were not intended (or are not permitted) by the Franchisor.

  6. There is little (or no) pooling together of funds by Franchisees to afford a well structured/ rationalized annual Marketing Activity Schedule; so marketing tends to consist of disjointed initiatives happening at a per Franchise business unit level only.

  7. It is nigh to impossible to influence the majority of Franchisees to work in accordance with the vision/ direction stated in any company Strategic Plan.

  8. There are generally no adverse consequences delivered by the Franchisor for non-complying Franchisees; mainly because the Franchisor is mostly concerned about retaining high numbers of Franchisees – and any departure of Franchisees would dilute/ undermine the ability of the Franchisor to negotiate favourable terms of trade with “Approved Suppliers”.

 

B) Some of the Typical Key Features of a Franchise-Cooperative (sits between a Buying Group and Pure Franchise) – 

  1. The Franchise Agreement tends to be more rigidly structured (prescriptive) than that used to set boundaries for a “Buying Group” participant/ Franchisee.

  2. Still a high level of “freedom to choose” and act autonomously exists for the Franchisee; yet the Franchise Agreement typically requires the Franchisee to do certain things as mandatory requirements. 

  3. Generally, a “Corporate Identity Protocols’ publication will be in place, guiding the correct use/ application of the company brand.

  4. Generally, training resources of some description will be in place, enabling the up-skilling of Franchisees and/ or their employees.

  5. Generally, the Franchisees will be required to report certain KPI’s (e.g. Sales $ achievement, Sales Unit achievement, etc) in a “Management Report” to the Franchisor, at a stated frequency.

  6. Generally, defined trading territories will have been developed by the Franchisor; which govern the geography within which each Franchisee is permitted to operate/ trade.

  7. Generally, special terms of trade will have been negotiated with carefully chosen “Approved Suppliers”; to benefit Franchisees.

  8. Generally, Operating Procedure documentation will be in place; to help Franchisees achieve good efficiencies when operating their respective Franchise business units.

  9. The Franchise Agreement may provide for the Franchisor to reprimand Franchisees for non-compliant behavior – or even remove privileges or apply financial penalties; yet I have found that when “push comes to shove” directors of “Franchise-Cooperatives” tend not to apply such measures due to fear of the relevant Franchisee reacting by severing ties with the Franchise.

 

C) Some of the Typical Key Features of a (so called) Pure Franchise –

  1. The legal agreement which underpins the Franchise is very prescriptive in nature, with most actions required of Franchisees being mandatory rather than elective.

  2. The Franchisor places huge value in the company brand, and is focused on preserving and building goodwill that relates to the company brand through requiring Franchisees to act in certain ways and do things in accordance with the Franchise Agreement.

  3. There is little-nil freedom for Franchisees to choose to apply business practices of their own determination. Rather, the Franchise Agreement, a Company Constitution, Policy and Operating Procedures provide very rigid prescriptive guidance as to how the Franchisor expects Franchisees to act.

  4. The Franchisor is deliberate and conscientious about ensuring that intellectual property/ resources are in place; such as: franchisee management reporting of prescribed KPI’s (e.g. Sales $, Sales Units, etc), training resources, electronic platforms – e.g. intranet, ecommerce site, business Facebook site, Corporate Identity Protocols – to govern the use of the company brand, formal prescribed trading territories – to govern what the geographical limits/ reach of each Franchisee’s trading activity are, Operating Procedures, Company Strategic Plan, Marketing Strategy and dedicated budget for annual marketing activity…and the list goes on.

  5. From a customer experience perspective, there is typically a high level of “sameness” about the business engagement experience for customers where indeed the Franchisor is successful at having all Franchisee business units operate with a similar level of compliance in respect of Operating Procedures most importantly.

  6. The Franchisor needs to be particularly skilled as a leader; to be careful not to “dictate” all of the direction and operation of the Franchise…to ensure that they invite and take the views of Franchisees into account when setting company direction.

  7. The Franchisor is more concerned with attracting and retaining high quality Franchisees, than building a large empire comprising non-compliant Franchisees who compromise the company brand with commercial practices (or lack of) which could adversely impact brand reputation/ integrity.

 

Summary –

In my experience a franchise operation which sits somewhere between the “Franchise-Cooperative” and “Pure Franchise” structures will deliver most commercial advantages to both the Franchisor and Franchisees. And typically individual franchisee businesses that operate within such a franchise have the greatest potential for resale as going/ trading concerns. This is so, largely for these reasons:

  • There is a good amount of rigidity/ formality which governs how the business operates – the “rules of the game” are well defined and communicated so all concerned know exactly where they stand at all times. This engenders stakeholder confidence in the governance and management of the business.
  • Unwanted disruptive (and conflicting) antics of individual strong-minded Franchisees who attempt to “have things their way” are appropriately and professionally managed, so that such behaviours have nil adverse effect on the chosen direction (and brand) of the franchise.
  • Frequently published internal communications to Franchisees ensure that Franchisees are kept up-to-date about current matters/ issues/ opportunities which affect them – and which they are invited to have input into.
  • Appropriate quality resources are produced and made available, to closely meet the commercial needs of Franchisees.
  • Enough “freedom to choose” is preserved for Franchisees, for Franchisees to not feel “hamstrung” and able to act with at least some autonomy.