What is a franchise and what are its advantages?
63.88* billion euros. This is the total sales figure for the franchising sector in France in 2020. With 78,000* franchisees, France is the leading European country in terms of networks. Widely used by French entrepreneurs, franchising offers profitable and relevant advantages for both franchisor and franchisee.
If you're looking for a fast, efficient way to grow your business, franchising is not something to be overlooked. On the other hand, if you're an entrepreneur looking for a concept to exploit, it can give you the opportunity to open an establishment under an established brand name.
But what does franchising really consist of? What are the challenges and benefits? What are the different types of franchise, and how can they help you grow your business? Find the answers in this article.
*French Franchise Federation
What is a franchise?
Franchising: definition and principles
Franchising is an agreement whereby one company, called the "franchisor", grants another company, called the " franchisee", the right to sell products and/or services, in exchange for direct or indirect financial compensation.
Under a franchise contract, the franchisor transfers its intangible rights:
- Brand name
- Trade name
- Licence, etc.
In addition to these intangible rights, the franchisor will contribute his know-how and procedures to the company receiving these rights. The franchisee will benefit from the franchisor's support.
In exchange for these rights, the franchisee pays royalties to the franchisor. This generally takes the form of a percentage of sales. In addition to this percentage, a fixed sum may be paid to the franchisor. Franchisees must abide by the rules of the franchise network established by the franchisor.
Franchising is therefore a genuine form of collaboration between two separate businesses.
👉 Example: I'm a retailer and I own a clothes shop in Montpellier. I want to develop my business by creating a franchise in Marseille. I am therefore the franchisor, and the franchisee will be the company in charge of the new shop in Marseille.
Examples of franchises
If you don't know what a franchise is, you've probably already seen one. You may even be a regular franchise customer .
Some of the best-known franchises in France include :
- McDonald's: The brand has over 1,400 outlets, 80% of which are run by franchisees,
- Accor: The group owns numerous hotel brands (Sofitel, Fairmont, Mercur, Ibis, etc), with franchisees accounting for two-thirds of the group's hotels,
- Alain Afflelou: The optical brand has 1,400 optical shops worldwide, 700 of which are franchises.
Who is involved in creating a franchise?
Franchising enables companies to build brand awareness and loyalty by rapidly setting up several points of sale with the help of franchisees. Thanks to franchisees, you will be able to cover more ground and gain market share.
Creating a franchise network is the right business model for you if your business offers an innovative concept in your sector. Developing your business via franchise agreements will then allow you to have more customers and cover a larger share of the market.
📣 Be sure to check a few things before setting up your franchise network:
- See if your concept is growing, if it attracts many customers, and if it is successful,
- Judge your skills as a trainer. For a franchise to work, you need to be able to pass on your know-how to your franchisees as effectively as possible,
- Analyse your skills as a manager. The franchise contract requires the franchisor to provide ongoing support for franchisees,
- Study your legal environment. Creating a franchise implies having knowledge of the law.
💡 If you want to know how to create a profitable franchise in 6 key steps, follow our guide!
Franchising: key figures
Franchise networks is a distribution method that is appealing to more and more entrepreneurs, especially on the French market.
The French franchising market was valued at €47 billion in 2008. By 2020, this figure has been put at 63.88 billion, for almost 1,900 franchisors and 78,000 franchisees*. Sales in this market have therefore risen by almost 36% in the space of 12 years.
France is a favourable market for the creation of franchises, occupying third place among the countries with the highest turnover from franchise networks.
*French Franchise Federation
The different types of franchises
Distribution franchises
The franchisee owns a shop under the franchisor 's brand . It is the franchisor who decides what products the franchisee will sell.
Examples of distribution franchises include :
- H&M in the ready-to-wear sector
- Franprix in the mass retail sector
Service franchises
The franchisee will provide services under the franchisor's brand name.
In the hotel sector, service franchises include brands such as Novotel and Mercure. In a completely different sector, hairdressing salons, there are Franck Provost and Tchip Coiffure.
Industrial franchising
The franchisee will manufacture goods following the franchisor's instructions.
The largest franchise chains are to be found in the industrial sector, including Coca-Cola and Yoplait in the food industry.
What are the advantages of franchising?
Advantages for the franchisee
By developing your franchise network, you are not the only one to benefit. Your franchisees also benefit from this system:
- Operating rights: the franchisee has the right to use the brand's operating rights as well as its intangible rights,
- A standardised product range: the franchisee does not have to create a new product range and uses the company's existing products directly,
- Support: all know-how and procedures are taught to franchisees,
- Security: having an established offering that has already proved its worth with many customers means you can be more or less certain that the concept works. From the moment they open their stores, your franchisees have the legitimacy of the brand. What's more, they can be legally independent by having their own company to run the business,
- Marketing and communication: spending on advertising to give the brand visibility will have a positive impact on your franchisees.
Advantages for the franchisor
By developing a network of franchises around your brand, you will benefit from a number of advantages:
- Limited investment: as the franchisee only has to make a contribution to build up the business, your investment is limited and you reduce the chances of your business running into difficulties,
- The expertise of your franchisee: your future franchisee, who in most cases knows the place where he wants to set up the franchise, will have carried out market research beforehand to determine the most suitable location and ensure the profitability of his project,
- Rapidly increase your market share: it costs much less in terms of time and money to set up franchises than to invest in your own business. The time it takes to set up the franchise and the investment required are borne by the franchisee.
- Financial remuneration: your franchisees pay you a fee, which is often a fixed sum plus a percentage of their turnover,
But also :
- Economies of scale: the larger your franchise network, the greater your output. It will then be possible for you to make economies of scale on large production volumes,
- The development of your brand awareness and image: having several signs in your name will improve your visibility in the eyes of customers.
- Ease of expansion: once you have your franchise system established (contracts, training, etc.), it will be easier for you to duplicate franchises,
- Reduced risk of competition: having several franchisees means you can set up more easily and more quickly. This makes you more competitive than other companies in your sector.
Franchising, a real lever for development
Highly popular with entrepreneurs, franchising has been on the increase in France in recent years, and is a model that enables you to grow your business.
Whatever your profile, whether you're an entrepreneur with an innovative concept looking to expand your business, or an independent entrepreneur looking to start up a business with an established concept.
In both cases, creating or joining a franchise network can help you increase your sales.