TYPES OF FRANCHISE BUSINESS MODELS

Introduction

India is the second most populated country with over 1.3 billion people and is said to be the world’s most populous country by 2027. It has also been expected to surpass the economy of the united states by 2035, making it the world’s largest economy.

The franchise business has been a shining star in India’s economy and it’s time for the franchise to explore the opportunities in the smaller cities to expand, after the impact they have made in the metropolitan cities. 

What is Franchising? A franchise is a type of license that grants a franchisee access to a franchisor’s proprietary business Knowledge, process, and trademarks, thus allowing the franchise to sell a product or service under the franchisor’s business name. In exchange for Acquiring a franchise, the franchisee usually pays the Franchisor an initial start-up fee and annual licensing fees. Various fast food companies like Dominos, pizza Hut, Burger King, KFC, Patanjali, Archies, Etc.

Different Types of Franchise Models

There are 4 types of franchise models:

1. Company Owned Company Operated (COCO)
2. Company Owned Franchise Operated (COFO)
3. Franchise Owned Company Operated (FOCO)
4. Franchise Owned Franchise Operated (FOFO)

Franchise structure differs across these various franchise models.

1. Company Owned Company Operated (COCO) – COCO is a model where the franchise store unit is owned by the brand and is run by the brand. It has nothing to do with franchising in the least. As a result, the franchise is funded entirely by the company. Employees of the brand run the franchise. Example: Reliance Jio Mart, Bigbazar.

Advantages of COCO model:

• The entire profit goes to the company because there is no channel partner to share it.
• It allows the company to expand in locations where franchisees are hard to come by.
• Helps a company in showcasing its outlet and product range.

Disadvantages of COCO model:

A corporation spends time and money on activities that are not its core business, such as owning and managing a store.

• Company Owned Franchise Operated (COFO) – This is where the company invests in the franchise business and the franchisee runs it according to the company’s guidelines. This is unusual and uncommon in the market because most businesses that invest in expanding their operations choose to do so by themselves. Example: call centers that handle calls on behalf of a company.

Advantages of COFO model:

• No operational expenses to bear.
• High productivity and efficiency because the outlets are managed by an entrepreneur.
• A company can open its outlet in the areas where it is not finding the franchisees.

Disadvantages of COFO model:

• A franchisee is in charge of the customer experience. If it isn’t appropriate, the company’s name will be harmed.
• If a franchisee leaves, the company may be at a loss regarding what to do next.

• Franchise Owned Company Operated (FOCO) – The franchisee is the one that owns the property and is responsible for all additional capital expenditures. The store/outlet operations are managed by the franchising company. It is also known as Franchise Invested Company Operated. Example: Bistro57.

Advantages of FOCO model:

• Better customer handling as the customer experience is in the hands of company.
• Company does not pay for set-up expenses, franchise does not pay for operational expenses.

Disadvantages of FOCO model:

• Not suited for those planning to rent property to become a franchisee.
• Due to the franchisee’s lack of involvement in day-to-day operations.

• Franchise Owned Franchise Operated (FOFO) – The company gives the franchise investor its brand name in this FOFO model. They do so in exchange for a non-refundable (franchise fee) and a pre-determined period. The brands decide on the prices and items for the outlet. As a result, the franchise investor is the store’s owner, and the franchise must bear all operational costs. Also, the Franchise is required to pay the Brand a percentage of income (royalty). This model is the most used in the marketplace.

Advantages of FOFO model:

• A variety of franchise opportunities to choose from.
• Excellent return on investment on a successful franchisee.

Disadvantages of FOFO model:

• Higher failure rate compared to other franchise business models.
• This franchise concept is seen by some franchisors as a quick way to success. As a result of the hefty franchise fees and other investments, the return on investment time may be undesirable.

5.     Hybrid Franchise Model

In the world of franchise business models, hybrid franchising is relatively new. It is a hybrid franchise platform that combines physical and digital franchises. Traditional enterprises are digitally turned into a multi-functional hybrid franchise platform.

In brief, hybrid franchising involves digitizing a traditional brick-and-mortar franchise and combining it with other business concepts. Several teams and business models collaborate to assist franchisees in growing their businesses.

A hybrid business model combines elements of single proprietorship with those of a larger corporation. It enables a business owner to expand their own company while working within the concept and structure of a larger corporation. Individuals buy the rights to utilize their brand name, systems, logo, and model from franchise owners, allowing them to start their enterprises.

In a more modern sense, a hybrid business refers to a company’s efforts to advertise its main products in a variety of contexts. This business model can include running a brick and mortar store while also keeping an internet store and employing catalogue sales to generate orders via the mail. Typically, the hybrid company will have its warehouses to manage orders received through the mail and those received through the internet site. This brick and mortar back end operation may be outsourced to order fulfillment providers in some situations as a strategy to reduce overall operating costs.

Conclusion

Every franchise model serves a specific purpose only. When that model gets used for that specific purpose, then the advantages outweigh disadvantages. Furthermore when any franchise model is used with a stretched purpose, then its defects will be more visible than its benefits. Thus a franchisee needs to have clarity on the purpose of taking a franchise. And match the purpose with the features of the respective franchise model. If purpose and feature match then only a prospective franchisee should go ahead.