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Unemployment and franchising

Written by: Nick Strong

Article Overview: Nick Strong investigates how the franchise community is managing to deal with an economy that is forcing unemployment and reducing access to business development liquidity.

Unemployment and franchising

USbank Citigroup announced plans for up to 75,000 job cuts worldwide, up from a previously announced total of 23,000. Citigroup said in a statement that the cuts represented a reduction of about 20% of its staff, leaving the bank with 300,000 jobs worldwide. The cuts will come from redundancies, the sale of units and natural wastage, the bank said.

The above statement is clearly not good news for those affected by the job losses announced. However, many people who have dreamed of going into business have often not done so because of the allure of job security. The removal of this security can be just the boost needed for people to take the step into self empowered franchise business building.

In response to this franchise brands are thinking creatively how to recruit and support their franchisees during the current downturn. For example news out fo America via the Wall Street Journal comments that Dominos Pizza Inc is considering making loans available to its franchisees. This will allow franchisees to gain access to capital and not suffer from the limiting affects of the credit crunch in the US economy.

"Domino's Pizza Inc. discussed how its borrowing capacity has been hampered by Lehman Brothers Holdings Inc.'s bankruptcy filing. With the credit crunch weighing heavily on the restaurant industry, Domino's said it will save its cash and potentially make loans directly to its franchisees.

Interestingly Yum! brands which owns Pizza Hut, KFC and other brands is looking to its franchise ownership programme to right its decline in sales performance.

According to Reuters, "Yum! Brands will eliminate hundreds of corporate jobs as part of an ambitious re-franchising program. The company, which posted a 16% drop in U.S. operating profit for the third quarter, plans to cut its ownership of Pizza Hut and KFC units to 10%

So why do businesses focus on franchising?

Franchisees can often be highly motivated. Owning a franchise outlet means that you personally invest into the franchise brand and build your outlet as your own business in the system of the brand. Because of this fact most franchisees work long hours enthusiastically and are very focused on customer care. This in turn yields results in terms of happy customers, recommendations and strong repeat business. This drives positive and growing revenues for franchisees and franchisor alike.

Additionally franchisee ownership removes the capital burden from the owner company. The alleviation of capital cost via franchise ownership helps the owner company by lowering its operating costs and need to access cash for working capital and growth. The risk is spread and the benefits of operating the brand is shared via good franchising.

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Article Tags: bankruptcy filing, borrowing capacity, business building, credit crunch, domino s pizza, dominos pizza, franchise brands, franchise business, franchise outlet, franchise ownership, franchisees, job security, lehman brothers, lehman brothers holdings, lehman brothers holdings inc, owning a franchise, pizza hut, sales performance, wall street journal, yum brands



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Any franchising horror story? - I am always writing about the benefits of franchising in this forum. Although I don't own a franchise I do believe in franchising is a great business model. Do any of you have horror stories to share about franchising?
Re: STARBUCK - Licensing vs Joint venture - [quote="bmueller47":czemqiul]I often come here to learn something, therefore I would like to know what is the real practical difference between licensing and franchising. I might have an answer, but you are at the forefront with your knowledge.[/quote:czemqiul] Very good question. Although I am not an attorney, I will do my best to highlight what I believe are the main differences between franchising and licensing. First, here in the US, franchising is very regulated buy the Federal Trade Commission. Not anyone can franchise, you have to go through various steps. Licensing doesn't come with as much regulation. The franchisee can expect to have a very close relationship with his franchisor. In most cases, the franchisor will offer training, and on-going support. The franchisee will be able to use the franchisor's copyrights, trademarks, logo and so on. The franchisee is like the public face of the franchisor. This is I think the high value of franchising. Also, a franchise agreement will most likely define territories. The relationship between the licensee and the licensing company is much looser. In most cases, the licensee won't be able to retain the rights to trademarks, company name, etc and will have to establish his own identity in the marketplace. Licensees rarely get a protected territory which means you next door neighbor could be your competitor... Obviously, franchising is more expensive than licensing because you get a certain "safety". Again, franchising is highly regulated whereas licensing is not. There are many other differences between franchising and licensing but I think these are the main ones.
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