Franchising & Small Business

Question: Identify an existing independently-operated business (i.e. one that is currently not a franchise organisation) which appears to have the potential to be franchised in order to facilitate future expansion. The organisation you choose must be a real business. It may be located in Australia or internationally. Prepare a report on the feasibility of franchising this organisation. Answer: Introduction: Franchises open new opportunities for the business. It is one of the ways in which the expansion in the business can take place. However it should be taken into account whether the business franchise will bring the necessary benefits for the business and what would be the cost of taking that step. The purpose this feasibility is to identify a business that has not been franchised yet and research on whether it can be franchised or not. Due to limitation of time the research was only conducted from secondary information rather than primary information. Conducting primary research would have given a much accurate representation of business. Research was conducted from a broad range of secondary information such as Internet, books, government database, report from private market research etc. There are a few limitations that may have an effect in concluding accurate recommendations about the business. The limitations include the liability of data collected from secondary source, the env ironment at the time of data collection and how old the data is form the period the feasibility was conducted. The business chosen for the feasibility was a falafel business named Falafel express- Hummus and Falafel Bar. This is one of the leading brands operating in 18 countries. The market share of the Falafel experiences a serious stress due to the increased competition and health consciousness and this report aims at the recommendation of few feasibility options for Falafel one such is franchising (Zomato 2013). This restaurant presents variety of cuisines and has wide network in major countries like US, UK, Australia, and India etc. It basically serves Mediterranean and east Mediterranean as well as Lebanese meals. History of business: An interview was conducted with the business owner regarding the feasibility to gain significant information about the business. The sections below contain an explanation of the answers that was given by the owner. The business is a start-up business. Two friends who have been known each other for 15 years own the business under partnership. They have about four casual staff and work themselves to have full control on business. It is important to work hard for the success of the business.It can help owner understand it customer base and then improve business accordingly. The location of business was chosen after determining a numbers of factors; include personal preference, competitors, transport service availability and globalisation. After determining all the factors mention above the owner choose Surfers Paradise, which is one of the most visited places in Australia and attracts more than 12 million tourists annually (Gold coast city council). The place have transport service available, there is no other business that is selling similar products nearby and is visited by a number of tourist from gulf and south east Asia. They have very cultural base thinking especially when it comes to food. This could be an advantage for the business as it sells a variety of vegetarian and halal foods, which most people from these backgrounds prefer due to cultural heritage. The business sells a variety of vegetarian food, specialist in falafel. The food in menu includes falafel pocket, falafel balls, falafel plate and falafel salad with a combo option of chips and hummus. The product is freshly made in the shop daily to keep their product healthy. They food is also gluten free and vegan which could be an advantage as there are no other shops around the business that sell vegan food. The business is on start up stage and is only six weeks old. The business intends to get its product and services out to end customer through corporate owned outlets. There is only one outlet so far which is in Surfers Paradise but the owner is planning to build more outlets so he can reach as much customer as possible. Owner is promoting business through varies promotional methods like radio, social media, website, business cards, personal canvassing, billboard, pamphlets and through hotels by giving a certain discount to a particular hotel customers and staff. The promotional method was selected which reflect the target market and business product / services. The pricing strategy that the owner selected was based on varies fixed and variable cost that the business deals with. The owner did a market research based on the product that the business was selling and also looked at his personal goals about the business. The prices that the owner selected were similar to any other competitors price bearing in mind that in case of any competition he has enough room to beat his competitors price. The pricing strategy that the owner used to promote his business was promotional discounts. Promotional discount is a discount on a product for a specific period of time (Govt. of WA). Promotional discount is a good strategy for a start-up business to pull customers and increase its maker share in the industry, which will lead to huge profits for the owner in coming years. Market Analysis: Globally, fast food industry has grown in last five years to 55.1 billion USD which is also reflected in the Australia. Fast food industry plays an important role in the Australian society and is a major contributor to the national economy.The Australian fast food industry is made up of approximately 39,584 establishments and 24,734 businesses, many of which are small businesses. It employs over 300,000 employees. In 2012 2013, it generated $15.8 billion in revenue. McDonalds alone has an estimated economic contribution equivalent to 0.2% of Australias gross domestic product and employs over 90,000 Australians. On average Australians eat fast food at least once a week (FSA 2014). Although the industry caters the Australians, the growth of the industry is dramatically affected by the consumer food awareness and health consciousness. The industry has forecasted approximately 1.2% of growth in forthcoming decade. They also expect an increase in Australian GDP to 2.7% (IBIS 2014). Though the matter of fact regarding huge health awareness among Aussies, the growth is also hampered by weaker revenue gain and potent competition from global and local players of fast food industry of Australia (IBIS 2014) is also devastating the business. SWOT Analysis Strengths Strong customer value (Market Research 2014) Increased customer preference Variety of dishes at low cost (Emily 2010) Cheap price in the market (Food Centre 2014) Weakness Lack of proper advertisement and campaigning Untrustworthy suppliers for Falafel (FSA 2014) Lack of consumer awareness Lack of skilled labour (Small Business 2014) Less staff retention rate Lack of potential marketing efforts Opportunities Increased demand for low fat diet among Australians Home delivery and combo plans New or innovative products which reduces the fat and carbohydrates Increased demand for low fat diet. Threats Saturated fast food markets all over the world Increased health consciousness (Simmons et al 2005) Negative publicity about fast foods by many NGOs and health organisations Local competition is strong Increasing craze for global players such as subway, KFC, McDonalds etc (Siwik et al 2006) Suitability for franchising: In the fast paced hustle and bustling work life, quick service restaurants render a great help to many people. Australia has a very massive fast food industry and also CAGR has estimated a dramatic increase in 3.6% of revenue gained via fast food industries to the nation. The current trend of franchising the fast food industry has been commenced in the middle of 1930s (Lowell 2014). Basically, franchising usually targets on the increased volume, less cost of production and rapid production from the restaurant. Generally, the food served is preheated or precooked and for kiosks or stands, the food are shipped or transported from one central location to another location. One of the greatest challenges in fast food industry is the stress over the profit margin. Public awareness over body mass indexing and high fat diet has devastated the business. Franchising structure Falafel can go for multi tier franchising. This involves formation of one or more unit and establishing relationship between two or more firms. This might suit for the Falafel since this option can be greatly helpful for creating huge opportunity, also money and other human resources are easily available from the franchisee which reduces the cost of operation. Another important benefit is risk sharing, the risk shall be easily managed by combining the skills and knowledge of all franchisees in the multi tier unit (MSA 2014). There is an option for consulting with individuals who share the interest in the business which will pave way for the growth and expansion of Falafel express since there is an extra source for business ideas. Rapid cash inflow can be achieved since profit arrives from multiple units. Multi-tier franchising may increase the domestic credibility for the business. Business franchisors can get a crystal clear picture about the demands and competitiveness and extra skills and resources are largely available for managing those competitiveness. Growth Growth is rapid when a business goes for multitier approach of franchising. Since area of development seeds for the principle actor in fast food business and provides the competitive advantage over other domestic and global rivals. This option draws many consumers as well as investors besides providing a brand image. Falafel gets less risk both in terms of finance and administration of the business. Also area development encourages the coordinated development of the business and all franchisors. Only sub franchising is not permitted in this type but entire rights are offered to the franchisor which paves rapid cash inflow (MSA 2013). Support services There are numerous supporting services in Australia in order to support the franchising such as iHR, franchise council of Australia. Franchise brokering, setting a proper fees structure, consulting and setting a justible rates than the competitors can be easily done by such supporting agencies which will promote the business (MSA 2014). Franchise fees and costs There are numerous types of franchisee fees, cost of operation and penalties etc. Also a franchisee must agree to pay cooperative fund which is not revenue to the franchisor (Lowell 2014). They are as follows: (Lowell 2014). Initial fees, one time fees, continuing fees, advertising and marketing fees and measurement of profits whether direct or indirect. (Lowell 2014). Communication systems Communication plays a vital role for franchisor franchisee relationship. Regional and provincial level meetings may be effective way of communication to share the profit, turnover and also share the business ideas and to update brand image, evaluate or assess the progress of the business, predict the returns and profits of business in future, resolving the issues and disputes. E-mail and Skype communication will help greatly and sustain the franchisee-franchisor relationship; Town hall meetings is another best way besides e-mail and telephonic communication with franchisor, face to face meetings may greatly help to communicate on common goals of the business. Chamber of commerce events and carnivals also business meets bi annually or monthly will support the franchisor franchisee relationship greatly (Lowell 2014) . Personal network communication is generally the acquaintances the franchise firms and its administrative band have in their personal-business address books. If somebody possibly will discover an approach to put these people together, make available them the precise communication and facilitate the search the possibility of working together, he may well generate a strong competitive advantage for the firm. The greatest issue in this area is the association of the business partners who works combining. The further stretchy work milieu fashioned by the franchisor, the additional probability of triumph below this model. The input is habitually communicating the spreading out dream with others or franchisees who share the common interest in flattering part of the business expansion story, expecting problems of these groups and identifying solutions to make it happen (MSA 2013). Legal aspects of franchising Franchising is generally governed by federal and state laws in Australia, besides being good relationship, one of the crucial factors for success. The legal aspects are that both the parties must be crystal clear in term of franchisee relationship, fees structure of franchising. The territories, rights and other obligations of franchising, payment methods for money transfer, also the risk sharing for development, training of staffs and also advertising. The rules and responsibilities of the franchisor and franchisee must be clearly mentioned in the franchisee agreement. According to the federal law, a franchisor cannot sell a franchisee of specific area until the closure of term of franchising. Conclusion and Recommendation The main issue is whether the Falafel which is a fast food restaurant can go for franchising for the business development. Upon analysing the market growth and prediction of fast food industry in the Australia, throws light on the development of industry. Although there prevails a strong competition from global players such as McDonalds, KFC, Pizza Hut etc and also few local players contribute to the significant decline in the sales of Falafel. Multi-tier franchising may be best option for the Falafel for the expansion and also it may provide the option for sustaining in the current competitive market. Multi-level franchising shares the business threat, competition, shares the risk. Also, it paves an ideal way for rapid profit, cash inflow and creates brand image and consumer awareness. The only disadvantage of going for multi level franchising is losing the control over the business. This can be avoided by good communication and weekly meetings. A large number of fast food restauran t businesses fail rapidly due to the proper business strategy. Franchising is a kind of division of labour which is cost effective way to achieve profit without spending large time and investment on the training employees. Also, it is a very convenient way to achieve and create niche market. Fast food always looks for easiest home delivery strategies in order to gain competitive edge and franchising in a multitier expands the restaurant and also quick home delivery for increasing brand value. So, this report strongly recommends the multilevel franchising for Falafel operation which might increase the sales and revenue in the Australian market. Reference: 2013. Which Franchising Structure Fits Your System? Simmons,D.,McKenzie,A.,Eaton,S.,Cox,N.,Khan,M.A.,Shaw,J.Zimmet,P.(2005). Choiceandavailabilityoftakeawayandrestaurant foodisnotrelatedtotheprevalenceofadultobesityinruralcommunities inAustralia. International Journal of Obesity,Vol. 29,703à ¢Ã¢â€š ¬Ã‚ 710. Siwik,V.P.,Senf,J.H.(2006).Foodcravings,ethnicityandotherfactorsrelatedToeatingout. Journal of the American College of Nutrition,Vol.25, Iss.(5),pp.382à ¢Ã¢â€š ¬Ã‚ 388.