CHAPTER 01: HISTORY AND
OVERVIEW OF FRANCHISING
1. HISTORY OF FRANCHISING
AngloFrench - freedom or liberty
Middle French - franchir, to free
Old French - franc, free
Middle Ages - feudal lords, selling the
rights to collect taxes and operate
markets. as a political activity rather
than a business activity.
first examples of franchising as a way of
doing business - mid-nineteenth century
Germany, brewers set up contracts with
tavern owners to sell their beer
exclusively in the taverns.
1851 - Isaac Singer became the first
American product name franchisor.
Sells the rights to sell his sewing
machines. starting the modern use of
franchising.
1860's - Singer Sewing Machine Co.
used franchised distributors to sell its
goods throughout much of the United
States.
quickly outpaced by Coca-Cola.
1890s - Coca-Cola franchise the rights
to bottle its carbonated beverage to a
large number of independent
businessmen.
The acceleration of franchising in the
1950s and 1960s can be attributed
largely to two factors: rise of
television advertising and the
establishment of the national highway
system.
Franchising operations in the
Philippines started in early 1900s. with
the entry of Singer Sewing Machine in
1910, followed by Eastman Kodak
1980s and 1990s.
The telecommunication sectors,
principally the television, radio network,
and telephone companies exist and
operate on the basis of a franchise
granted through legislative authority.
In 2022, the Philippines is the 7th
largest franchise market in the world.
7.8 percent to our country's gross
domestic product (GDP). Philippines
have reached 90% success rates.
2. FRANCHISING DEFINITIONS
A franchise is the agreement or license
between two legally independent parties
which gives a person or group of people
(franchisee) the right to market a
product or service using the trademark
or trade name, operating methods of
another business (franchisor).
Franchising is where a
person(franchisor) who has developed a
certain way of doing a business gives
another(franchisee) the right to use that
business model in exchange for a fee.
The business has built a certain
reputation and has brand recognition.
a successful business is being
replicated and run by entrepreneurs
who are called franchisees under the
supervision, control and assisted by the
owner of the business model.
Franchising is a special type of licensing
arrangement.
3. TYPES OF FRANCHISING
I. Product Distribution Franchise
A product manufactured by the
franchisor is sold to a franchisee who in
turn sells it to the consumer under the
trademark of the franchisor.
II. Manufacturing, Production Franchise
The franchisor sells to the franchisee an
essential ingredient or provides some
specific know-how, enabling the
franchisee to manufacture/product/
process the final product and sell to the
consumer.
III. Business Format Franchising It is an agreement where the franchisor
Business format franchising is the most grants a franchisee the rights to open
widely used form of franchising. It is and operate more than one unit.
only known as the full-fledged
franchising. The owner of a 2 Types of Multi-Unit Franchise:
business(franchisor) licenses to 1. AREA DEVELOPMENTA - franchisee
another(franchisee) the right to use the has the right to open more than one unit
particular business model including the during a specific time, within a specified
intellectual property associated with it, area.
particularly the trademark. 2. MASTER FRANCHISE - the master
franchisee also has the right to sell
Four essential elements of business franchises to other people within the
format franchising: territory, known as sub-franchises.
A. Allows the franchisee to use under
license its Intellectual Property 1.5 INTERNATIONAL FRANCHISING
principally its trademarks. International franchising is both an
B. The franchisor controls the way the offensive and defensive strategy.
business is run. making the firm increasingly less
C. franchisor provides training, dependent on home country revenues
mentoring and assistance. and demand.
D. Franchisee makes both initial and
periodic payments.

1.4 TYPES OF FRANCHISING

ARRANGEMENTS

1. SINGLE UNIT (DIRECT UNIT)

FRANCHISE
It is an agreement where the franchisor
grants a franchisee the rights to open
and operate one franchise unit.
The simplest and most common type of
franchise.

2. MULTI-UNIT FRANCHISE
CHAPTER 05: FRANCHISE
LOCATION AND SITE SELECTION
1. Importance of location
2. Considerations for location
and site selection
3. Geographic selection
4. Franchise site selection
1. IMPORTANCE OF LOCATION AND
SITE SELECTION
“Selection of the right location for a
proposed franchise outlet can mean the
difference between success and failure.”
Location theorists often claim that the three
most important criteria for success of any
business are LOCATION, LOCATION,
LOCATION
Franchisor should be able to provide with
the “site criteria” required for particular type
of franchise business.
Selection of a suitable location is of extreme
importance to both franchisor and
franchisee.
2. CONSIDERATIONS FOR LOCATION
AND SITE SELECTION
The considerations for location and site
location are the following: (FOD)
1. Franchise expansion – increase market
share – percentage of the sales of
franchised business compared to the
industry’s sales.
2. Overhead – decrease fixed costs– costs
that are constant in establishing branches
such as administrative costs, capital
expenditures, depreciation, utilities.
3. Distribution – the services expected by a
franchisee from a franchisor to provide
inventory, supplies or products through the
franchise distribution system.
Many franchise organizations have
established specific retail site qualifications.
Some criteria are the following:(PTTCSEU)
1. Population density - the number or
concentration of people in the chosen area
or location and the demographic
background.
2. Traffic generators - the areas that are
capable of having repeat customer foot
traffic.
3. Traffic count and accessibility – the
number of people and cars passing by the
location.
4. Competition – the proximity of the direct
(similar) and indirect (slightly different)
competitors.
5. Security – the relative safety
characteristics of the location for employees
and customers.
6. Employees –the closeness of the location
from employee’ residence.
7. Utilities -Water supply, electricity,
sewage, telephone lines play an essential
role in determining the suitability of a
location.
3. GEOGRAPHIC SELECTION
For successful expansion, a franchisor
needs to learn what type of people
patronize the franchisor’s own operating
unit as well as any franchised units.
LOCATION MODEL
It is basically a three-step approach to
identification of areas for system expansion
and determination of specific sites within a
chosen area.
These steps are as follows:(SDI)
FIRST STEP. Selection of geographic
areas for franchise system developed.
To determine the proper distribution of
franchisees within the total geographic area
covered by the franchise organization.
One way of dividing areas into franchise
market or geographical areas is to use
Designated Marketing Areas (DMA). The
DMA approach divides the areas into
dominant television market areas; per
Regional areas, per Major Islands.
SECOND STEP. Determination of the
number of franchisees to be established
within a specific geographic area.
To determine the number of potential
franchised units the franchisor would like to
have within a specified geographic area.
A useful tool to assist in this determination
is Buying Power Index (BPI). BPI is a
powerful tool for determining market
potential and can be defined as a weighted
index that converts three basic elements
(PER) – population, effective buying income
and retail sales. The Buying Power Index
offers a franchisor the opportunity to identify
an area’s potential buying power.
THIRD STEP. Individual site location based
on criteria used to distinguished between
specific site alternatives
financial capabilities of the communities.
Some franchisors, especially large
companies, take extensive research to
examine: (TIF)
a. transportation networks,
b. industrial development patterns, and
c. financial capabilities of the communities
4. FRANCHISE SITE SELECTION
For franchised retail locations, franchisor
normally tells a new franchisee that the
company will assist in site selection and
must have “approval” of the final site.
Franchisor typically address approval of site
from three (3) distinct viewpoints:(ROM)
a. Real estate – considers the specifics of
zoning, local ordinance clearances,
land purchase or lease, property
development and flow of traffic
b. Operations – include size of unit
proposed, breakeven point, return of
investments
c. Marketing – to determine who the
customers will be based on
demographic profiles and what are their
tastes and preferences
In many cases, the franchisee has a little
understanding about what is required to
develop a location or assess existing
properties as potential business locations.
As a result, the franchisee usually seeks
advice from different people:(FARA)
a. Franchisee’s banker – who will usually
lend 65% to 80% of the cost of site
development
b. Attorney – provide consultation on tax
matters, leases, contracts
c. Real estate broker – provides advice
concerning prime or hot commercial
areas as well as relative costs within
these areas
d. Accountant – who will determine the
amount of cash available to the
franchisee that can be used for
development of the property
There are three types of franchised
business, and their general characteristics
should be considered before a checklist is
developed by the franchisee.(UCC)
a. Unique Business – typically has a craft
or high-quality image associated with
the product or delivery of the service.
Customers are “drawn” to the location
from a community as compared to
living in the immediate geographic area
of the business location.
b. Competitive Business – offers the
same or similar kinds of products or
services that other franchised or
independent businesses provide within
the community. Convenience is a major
factor in determining site for the
business.
c. Comparative Business – location
should normally be near competitors so
that potential customers can compare
products. Often located along business
strips, within shopping malls or
neighboring street corners.