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Franchising is not a new concept and it has been a commonly-used business model for many small and big businesses benefiting one another. Franchising helps small businesses reach out to new and bigger markets and improve their visibility and profitability.
Bigger firms on the other hand use this model to reduce their operational costs, focus on their core competencies, and penetrate existing and new markets. The COVID-19 pandemic is a crisis which has affected almost all the economies of the world and businesses alike.
Before starting, let us understand first how the franchising business model works. In franchising, there’s a franchisor that grants licence or rights to a franchisee to carry out business on behalf of the former based on an agreed framework and bound by a contract. There are four important models of franchising:
- COFO (Company Owned Franchise Operated)
- FOFO (Franchise Owned Franchise Operated)
- FOCO (Franchise Owned Company Operated)
- FICO (Franchise Invested Company Operated)
For example, if a cloth store wants to expand its business, it can obtain a franchisee license from a reputed brand (franchisor) to offer clothing and tailoring services at its store under the brand name of the franchisor. Under such an arrangement, the franchisee is required to maintain the overall business and operational standards laid down by the franchisor company for its franchisee stores.
Now that we know what forms a franchisor-franchisee relationship can assume, let us see the possible ways it can benefit businesses during the on-going COVID-19 crisis.
Shared Capital Burden
An economy runs on consumption and people are not able to spend because of the lockdown. All the stores have been closed down except for the essentials such as groceries and medical stores. A lot of businesses are suffering due to lost demand and sales and cash inflow has hit zero for almost all businesses. With dwindling economic activity and business revenue, entrepreneurship and business expansion in the post lockdown era seems like a daunting task especially in terms of meeting new or fresh capital requirements.
For any business to grow or expand, lack of capital serves as the most common barrier which now stands accentuated due to the pandemic crisis. Another big concern for financial institutions and investors will be the prospects of return on investment from business loans.
Franchising emerges as a ray of hope for businesses and entrepreneurs to work on business growth and development under the COFO model.
Using the Brand Power
In the post lockdown era, big brands might remain advantageous over brands with lesser visibility or customer awareness or the necessary resourcefulness. Given the capabilities of the big companies in terms of their supply chain and distribution networks, logistics and infrastructure, financial prowess, and most importantly their brand value, these companies can serve as an umbrella organization for smaller, local businesses. For instance, Reliance JioMart uses its technology to reach out to a vast network of grocery stores targeting a few suburban areas of Mumbai.
Small businesses can associate with big brands via suitable franchising arrangements and keep their business running. The associated brand and reputation of the franchisor company will also help the smaller businesses in catering to their local markets.
Availing Expertise and Experience of the Franchisor
With the expertise of the franchisor in handling similar businesses and its experience of operating in the same industry, franchisees will have an upper hand in quickly setting up the business framework.
Franchisees will also save time and effort otherwise involved in building a new supply chain network.
Franchise business development plans also give the desirable entrepreneurs a platform of opportunity to start their business.
In the post lockdown era, unemployment will be a big economic concern. With lesser business activity, there will be lesser manpower requirements. The problem for the business community will be idle manpower resources.
The franchising route may provide an opportunity for businesses in getting back their lost momentum. The increased business activity shall reinstate the need for human resources.
With reduced demand for consumption, the risks of running an existing business or expanding during or after the COVID crisis has increased drastically. When existing businesses are fighting to survive, franchising models can give them a helping hand in recovering and getting back on their feet. Unfortunately, some businesses might take longer to recover because of the losses already suffered. There will be lesser players in the market working at their optimum levels and probably also they will have to cater to a larger market.
A well-defined retail franchise business plan will help ensure that the existing supply chain network of the franchisor is accessible to the franchisee businesses.
Even during the COVID Crisis, some of the branded essential stores are providing almost everything even when other smaller stores or local supermarkets are struggling to source the items. This has been possible because of their robust supply chains and huge network capabilities. Hence, the risk of losing out on sales and market share reduces with a franchise model business plan.
A Good time for Digital Commerce
Small businesses for whom going digital and being tech-driven was not conceived as a necessity is slowly turning out to be a strong possibility in the near future.
One of the important aspects of running a business is the involvement of digital technologies. Technology is not just an enabler but is a necessity for improved effectiveness and efficiency for business. For smaller enterprises, building eCommerce websites and integrating the workflows with their IT systems was never easy. But with franchising and a well-defined franchise business development plan, the franchisor’s existing digital and technological network and infrastructure can be used by the franchisee businesses.
Keeping in mind the various perspectives discussed in this article, franchising opportunities may emerge as a winning formula in the post the lockdown period. But that will also call for robust planning and a well-defined roadmap in consideration of all the relevant factors for franchise business development.
Your Retail Coach (YRC) is a retail consulting and outsourcing company in India offering a wide range of services in retail offline, retail eCommerce and retail omnichannel catering to a multitude of industries.