UK: The Commercial Challenges To Be Faced When Using Franchising To Create A New Channel To Market For Retail Businesses

Last Updated: 1 May 2012
Article by Mark Abell

Retail businesses which have scope for more rapid domestic or international expansion than their capital and HR resources permit, often turn to franchising as the means to exploit that scope to the full. Although it is not a panacea for all commercial difficulties, if done properly it does allow retail businesses to re-engineer themselves so that they can create new channels to market and the consequential income streams on both a domestic and international stage.

However using franchising to create a new channel to market is not without its challenges for retailers and it requires more than just a franchise agreement. It requires the development of a clear retail format that can be licensed to third parties and an infrastructure that supports it.

What is a Retail Format?

A retail format franchise is not a guarantee of success for franchisees, but is a "blue print" for a retail business which will greatly increase the franchisees' chances of success. It is a distillation of the key elements of that part of the franchisor's retail business which it intends to franchise and comprises a matrix of retailing know-how together with access to the franchisors' brand and supply chain.

The retail format needs to be easily replicable by the franchisees and so it needs to be kept simple and straight forward. The more complex the format is, the more difficult it will be to recruit, train and support Franchisees. It is important to remove as many barriers to the franchisee's success as possible.

The design, décor and layout of outlets must be kept simple and the stock inventory must be relatively narrow. The more extensive it is, the more complex is the task of all who have to deal with it, and the greater the risk of mismanagement.

The overall aim when developing a retail format should be to simplify control, reduce paperwork and make the system as foolproof as possible. It requires meticulous planning and anticipation of logistical, managerial, administrative, marketing and other retailing needs. The value proposition and target market must be carefully defined. The knowhow of the retail concept needs to be collated and incorporated into a tangible and easily accessible form – the so called manual. The brand also needs to be properly protected.

Franchisee Training and Support

Franchisors must provide Franchisees with initial and ongoing training together with a back-up service and information which no independent retailer fighting for market share against highly aggressive, low margin competitors could ever hope or expect to match. The Franchisor therefore needs to establish a systemised initial and ongoing training and support programme.

Financial Modelling

The financial model needs to be adequately developed so that the Franchisee's retail business can provide sufficient profits to generate an acceptable return on capital and a reasonable income for the franchisee, whilst enabling it to pay a fee to the Franchisor for the provision of all the continuing services it provides. Unless the retail business can generate sufficient income to make these payments, it is not capable of being established as a franchise.

The pilot operation

The Franchisor is selling the right to use a package of proven retail know-how under a brand. It follows that the Franchisor must have operated the retail business, developed the retailing know how and established the viability of the retail format in practice.

The retail format must be more than just an idea. A manufacturer can only use franchising as a channel to market if it has first piloted a retail business, developed appropriate retail business processes (which are captured in the manual), and developed detailed job descriptions outlining the specific duties of each member of staff and the manner in which they are to be performed. The specifications of the retail outlets and their branding must also have been developed.

Once a retail concept has been developed, the Franchisor has to remain ahead of the game. It must continually experiment with and further develop the retail concept. It will know that the retail systems it provides to the Franchisee are proved and tested. It is just as important that the continuing developments are proved and tested.

Developing the manual

The manual is these days usually on line rather than in hard copy form and will contain the complete method for conducting the retail business. It forms an essential part of the way in which the Franchisor's retail concept, retailing know-how and trade secrets are protected. It will, therefore, be appreciated that the manual should be extremely comprehensive and cover in detail all aspects of the day-to-day running of the retail business.

The manual should contain some introductory remarks explaining the basic nature of the retail operation and the business philosophy of personal service which underlies it. It should spell out what the Franchisee can expect from the Franchisor, and what the Franchisor will expect from the Franchisee.

There should then follow a detailed description of the retail system which explains how the operation is set up, and how and why the various constituent elements fit in with each other.

In a retail business one would expect the manual to contain details of business critical issues; such as stock requirement in terms of quality, quantities and range, store layout, display and merchandising techniques, including discounting, customer relations and guarantee and customer complaints procedures and so on.

There will usually also be a section devoted to standard forms. These might include contracts of employment, agreements with managers or staff requiring them to keep the Franchisor's trade secrets, methods, etc. secret and not to use or disclose them for any purpose except in the discharge of their responsibilities as employees and contract forms used in the course of the conduct of the franchised business.

It is not sufficient just to create a manual when launching the franchise. Franchisors must be conscious of the need constantly to keep their retail methods under review and to introduce changes and variety so that their operation is at the forefront of the market. Such changes and variations should be reflected in supplements and amendments to the manual.

Documentation

Once the retail format has been created and the retailers know-how and systems committed to written form in a manual – usually in an online, digital format, the franchisor needs to ensure that its brand is properly protected, that it has developed an appropriate infra structure to manage and support the franchise and produce an appropriate franchise agreement drafted by expert franchise lawyers.

The franchisor/franchisee relationship is a complex one which needs to be regulated by an agreement drafted by an expert franchising lawyer who understands not only the subtle names of the franchise relationships but also how a host of complex laws impact upon it. A well drafted agreement will not guarantee that a franchise will be a success, but a poorly drafted one is likely to ensure that it is a failure.

Conclusion

When a retail business uses franchising to create a new channel to market its needs to invent in ensuring that the retail concept is a sound one, that it is appropriately described in the manual and that a franchise agreement drafted by expert franchise lawyers properly regulates the franchisor/franchisee

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions