Refranchising: What, Why, and How
Refranchising
is a process of converting company owned outlets to local franchisees. For many
businesses, this is not only a new source of income but also a methodology of
tapping into local entrepreneurial talent to drive performance.
Why are Companies going in for
Refranchising?
The
refranchising drive may be triggered by several reasons.
For
instance, when a popular fast food chain decided to refranchise its stores, the
cost of revamping was to be borne by the new franchises, who also has to pay a per-store
fee to the company.
Why is Refranchising Franchisor
Friendly?
When a business is refranchised, the franchisor stands to benefit in different ways.
- Optimization of capital structure
- Utilization of capital in system growth
- Free cash flow and improved earnings
- Franchise expansion is easy with new prototypes
- Improved marketing, technology, and operations
- More outlets without the cost
Benefits to Franchises
Along with the franchisor, the franchisees also stand to benefit with refranchising
- Opportunity to step into a popular business
- Ease of marketing, since the franchise unit is likely an established brand
- Better staff training
Is Refinancing Working?
Yes, refranchising is working. However watch out for these bottlenecks.
- Parent companies not willing to accept franchisee store control
- Franchises without sufficient training and commitment hurting the quality of products and services
Refranchising can hurt franchisors if the handover is done without sufficient training and orientation. It can also hurt the franchisees if due diligence of the franchise business is not done. Take pains to understand the franchisor terms thoroughly before going for it.
For more insights into refranchising, Contact Us.