Who own’s a Franchise
Franchising is an agreement where the franchisee, who can be an individual or entity, is granted the rights by the franchisor to distribute and market the franchisor's goods or services using their business name, model, and brand for a specified period and within a specific geographical area.
There are three different types of franchise models:
- Product Franchise: In this model, the franchisee is authorized to market a product under the franchisor's name, brand, and trademark.
- Manufacturing Franchise: Here, the franchisee is given permission to produce and market goods using the franchisor's brand name, trademark, and logo.
- Business Franchise: This is the most popular type of franchising, where the franchisee receives a license to use the franchisor's trademark and operates the business according to specific rules and guidelines set by the franchisor.
In general, the franchisee owns and operates the franchise in a franchising arrangement. They enter into a contractual agreement with the franchisor to use their business model, brand name, and products or services. The franchisee is responsible for establishing and managing the franchise location, following the franchisor's operational standards, and paying franchise fees or royalties as outlined in the franchise agreement. On the other hand, the franchisor is the owner of the overall business concept and grants the franchisee the right to operate a franchise using that concept.
Taking Domino's India as an example with approximately 1400 stores in the country, the estimated cost to open a Domino's store is around 70-80 Lakhs INR. The franchisee is typically required to invest in a property and set up the necessary infrastructure for the store. A significant portion of the investment, around 35-40 Lakhs INR, is allocated to setting up the kitchen with advanced equipment and ovens to handle a large volume of pizza and other items. The franchisee must also provide basic amenities such as fans, air conditioning, tables, chairs, etc.
The franchisee benefits from the established brand and support provided by the franchisor. They own the physical assets of the franchise, including the store premises, equipment, and inventory. The franchisee is responsible for hiring and managing employees, handling day-to-day operations, and ensuring adherence to the franchisor's standards and guidelines. They pay an initial franchise fee, ongoing royalties, and marketing fees based on a percentage of their sales to the franchisor. This financial arrangement contributes to the overall support and development of the franchise system.
In the case of Domino's, the franchisee receives training and support from the franchisor, both in classroom instruction and hands-on experience, to understand and implement the Domino's business model in their own restaurant. The franchisor, in this case, Domino's, is responsible for establishing and maintaining the franchise system. They develop the business model, create marketing campaigns, conduct research and development, and provide ongoing support and training to franchisees. The franchisor benefits from the fees paid by franchisees, including the initial franchise fee, ongoing royalties, and marketing contributions.
To summarize, the franchisee and franchisor have a symbiotic relationship. The franchisee benefits from the established brand, systems, and support provided by the franchisor, while the franchisor expands its business and market presence through the network of franchise locations.
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