TASK GIVEN:

Explain the following in Franchise Business Model

1. FOFO
2. FOCO

TABLE OF CONTENT:
1. FOFO
a. About
b. Advantages of the FOFO Franchise Model
c. Disadvantages of FOFO Franchise Model
d. Marketing Activities in FOFO Franchise Model
e. Profit-Sharing in FOFO Franchise Model
f. Running Expenditures in FOFO Business Model
g. Conclusion
2. FOCO
a. About
b. Features of FOCO Business Model
c. Example of a FOCO Franchise Brand
d. Advantages of FOCO Franchise Model
e. Disadvantages of FOCO Franchise Model
3. FOFO Model Vs. FOCO Model
 FOFO (Franchise Owned Franchise Operated)

 About:
 In FOFO Model, the company gives its brand name to the franchise investor. This
model allows franchisees to use the brand’s processes, trademarks, and names in their
outlet.
 They give it for a particular non-refundable sum (franchise fee) and for a pre-agreed
time-period. That means, the agreement mentions a non-refundable fee required to
start a franchise, remains valid for a particular period, and, as per the terms of the
agreement, needs to be renewed again.
 The Prices and merchandise for the outlet are decided by the brands. So, the franchise
investor is the owner of the store, and all the operational cost must be borne by the
franchise itself, i.e., the potential owner is responsible for bearing all costs of
operating the store.
 Moreover, the Franchise must pay some percentage share of revenue (royalty) to the
Brand as well.
 The companies adopt the FOFO model for quick expansion of brand or business
presence and for penetrating the unconquered market by taking help from local
businesspeople.
 The company takes care of the staff training and sends them to oversee the business at
the new franchise.
 Product and business franchises, especially for QSR restaurants and GYM, opt for the
FOFO business franchise model.
 FOFO model is risky for the franchisor as the end-user experience in the hands of
franchisees. Thus, it becomes important for the franchisee to ensure that the
franchisor’s brand name does not spoil due to their business practices.

 Advantages of the FOFO Franchise Model:

 Many franchise opportunities to choose from  The model poses a lot of possibilities
for new businesses; budding entrepreneurs can start their careers from this model and
conquer new heights.
  Many companies and franchises have made huge revenues and enjoy their work as
they have the independence to operate as they want.
 A successful franchisee has an excellent return on investment.

 Disadvantages of FOFO Franchise Model:

 The variance in expectation vs. reality can overwhelm a first-time franchisee.

 The failure percentage is relatively high with the FOFO model compared to others.
Usually, the ROI for the FOFO franchise model is quite higher than the other models
in a similar league.
 The FOFO model allows the franchise to take over everything from recruiting new
employees to setting up the store. The franchise has 100% of power and control over
the business’s day-to-day operations.
 Some franchisors see this franchise model as a shortcut to success. So, they may have
high franchise fees and other investments making, return on investment period
unattractive.

 Marketing Activities in FOFO Franchise Model:

Marketing activities are essential in any business reaching out to the customer. For the FOFO
model, the franchisee had to handle all his business activities, including promotions and
marketing. This burdens the franchisee greatly, and if they manage independently, it will be a
challenging experience. In the future, it will reduce the effectiveness of their promotional and
marketing activities. Hiring a company to do all the promotional and marketing activities for
you can be one of the options to sustain in the ever-changing world for FOFO model
companies. As many brands need aggressive marketing to spread their word, it becomes
difficult for franchises to handle daily outlet operations.

 Profit-Sharing in FOFO Franchise Model:

The FOFO model here shares higher profits with the investors. The model is quite beneficial
for the franchisor to invest efforts and time to receive high profits from franchises. The
income is not steady in this kind of franchise and will depend upon the franchise’s
effectiveness in the niche to share profits.

 Running Expenditures in FOFO Business Model:

The FOFO model for company franchises requires regular checking, and it can lead to many
operational discrepancies. They need to familiarize themselves with the daily expenses; it is
more likely that bookkeeping and running expenses can go out of their hands. Improper
account management does cause a lot of financial liabilities, along with legal ones. It will
affect the brand’s reputation for the franchisor and can lead to many problems too. To be
efficient in the business model, the FOFO franchise had to maintain strict records to be
updated regularly. Opting for a FOFO franchise is a big responsibility, so taking care of
everything is very much required from the initial days; losing out on any single-day event can
result in much pending work.

 Conclusion:

Opting for the FOFO franchise business model can be great for your business. Only if you
like to work in a disciplined manner under a Companies supervision. It is a lot of work on the
part of the franchisee, and they can only afford to lose interest as it will result in
ineffectiveness. For the franchisor, the FOFO model is followed by many companies and has
been quite successful. However, the business can vary from brand to brand. Some brands
apply minimal interference; hence, they can hope for great ROI if a store succeeds.
 FOCO (Franchise Owned Company Operated)

 About:
 In FOCO, it is the franchisee that owns the property and does the other capital
expenditures. While franchising company manages the store/outlet operations. This
model is also known as Franchise Invested Company Operated.
 The franchisors take care of operational expenditures like staff salary, property rent,
electricity, training, various other utilities, logistics, marketing, advertising, etc. The
franchisee must worry about the money they have to invest in a renowned brand and
help expand the company.
 The brand staff handles the regular operations.
 The model works quite well for both business parties and generates a great return on
investment.
 The FOCO franchise model is usually preferred by many investors who already have
a regular source of income from different means.
 The franchisees opting for the FOCO model are promised a minimum guarantee for
revenue sharing or, at times, a fixed profit percentage.
 The company will also have to give a fixed percentage of profit shares to the owner of
the franchise.

 Features of FOCO Business Model:

1. Ownership  The FOCO franchise business model allows the franchisee to run their
business while the company operates well. It means that the investor must provide a
one-time lump sum amount which is always based on the location and other factors of
the brand.
The franchisor in the FOCO franchise model handles all paperwork and legality for
the money being provided by the franchises. It allows the business to follow a
professional approach for the Franchise and takes up the everyday business running
out of the new franchisees.
2. Profits Sharing  The FOFO model here offers the higher profits part to the
investors. The model is perfect for people willing to invest all their efforts and time in
extracting higher profits from the Franchise.
 3. Running Expenditure  Here the primary benefit of running a FOCO franchise
model is that the enterprise offers the Franchise with the investment option and
nothing else. So, the franchisee does not participate in daily business and operational
activities. Since its inception, the FOCO model has been considered one of the best
for daily working for investors and franchisers.
4. Promotion  The various marketing activities are important to the company’s
operating cycles. The FOCO model allows the franchisee to handle promotional and
marketing activities. Being involved in marketing activities for the cloud kitchen can
help increase profit and sales.
5. Success  Success in the long-term for any company depends upon the practical
adaptability of the brand. Franchises offer similar products or services, but the game
is lost if the right skills are not implemented. Therefore, the FOCO franchise model is
successful, as the culture is never changed or dependent on the geographical location
of the brand.

 Example of a FOCO Franchise Brand:

 McDonald’s is the perfect example of the FOCO model, especially in the hospitality
industry. The brand all over the globe offers standardized packaging, using the same
ingredients, menu, etc. These things ensure that all stores use the same procedures and
deliver identical products at every outlet. The franchise models for MacDonald’s are
best at replicating the business models and maintaining transparency and
optimization. The McDonald’s Franchise bears all the initial investment costs while
the brand looks after the operations part. The raw material, interior, recipes, and
trained staff, etc., are all provided by the Brand corporation, and thus, uniformity and
quality standards are maintained throughout.
 Dr. Lal Path labs is a renowned pathological and diagnostic center. The outlet follows
the FOCO franchise model. The company provides all testing equipment and
procedures and maintains standardization throughout the centers. Also, the franchisees
keep a keen eye that the outlet is run smoothly and bears all the initial cost.
 Similarly, one of the other examples in the domain is Ferns and Petals, a well-known
gift and flower delivery store that works quite well for the FOCO franchise model
 across India. Ferns and Petal have more than 150 stores in 50 cities. Other examples
of FOCO franchise models include Barista Cafe, Bistro57, Chroma, etc.

 Advantages of FOCO Franchise Model:

 As a franchisee not involved in the day-to-day operations so it can focus on its other
businesses
 As customer experience is in the hand of the company, customer handling is better.
 The franchisee does not pay for operational expenses, and the company does not pay
for capital expenditure (set-up expenses).

 Disadvantages of FOCO Franchise Model:

 Franchisee gets profit share, which at times is just little over the rent of property plus
the cost of capital. Thus, not a lucrative proposition.
 Not suitable for people whose intent to take property on rent to become a franchisee.
 No involvement of the franchisee in day-to-day affairs results in limited learning
opportunity.
 There are a high investment and limited opportunities for prospective franchisees
under this model.
 FOFO Model vs FOCO Model:

S.NO. BASIS FOFO FOCO

1. Ownership It requires the franchisee to The franchise investor gives a
handle all daily processes. So, one-time lump sum payment
the investor must handle the based on which they establish the
everyday management tasks business. The franchiser handles
including the establishment all the legalities and paperwork
purchase/rent and upkeep, based on the money given by the
employee retention and other franchisee. This lends a
processes. professional business approach to
the franchise and also takes the
day-to-day business running out
of the franchisee’s hands
2. Profit Share This model offers a potentially This model takes the liability off
higher profit share to the the investor. They get a share of
investors. However, this is the profits made by the company-
predicated on their business owned cloud kitchen. This
management proficiency. This ensures the investor gets a steady
is beneficial for only those who source of income.
are willing to invest time and
effort into churning out a high
profit from their franchise.
3. Promotion This model will require the The franchisee does not have to
franchisee to handle all handle the marketing and
businesses activities including promotional activities.
marketing and promotion.