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Franchise vs Company operated stores in organized retail

Franchise vs company own stores has been old debate.Both of these comes under head of organized trade. looks like franchise winning over the race for time being.

Whenever a company decide to reach end user its initial plan has always been through company outlets. Franchise own company operated has quite in fashion. In this module fixed cost is incurred by franchise thus saving capex and running cost is born by company and franchisee get a minimum guarantee or lump-sum amount.

Franchise model or say end point dealing with customer may be classified in following categories.
coco – company own company operated
foco – franchise own company operated
fofo – franchise own franchise operated

1. Company own company operated : In this model store is looked after by company staff. Every staff is asset or liability of the company. Company need to take care of capex (say renovation cost, interior, layout, hardware, it infrastructure, furniture and fixture, ceiling and flooring, glass door) plus operations cost (salary, electricity, store maintenance, telephone expenses, pilferage etc).

In this model a particular revenue is must in order to make store self sustained. so location factor comes very important and thus increase in rent. So often it has been seen that even if coco store is not profitable it kept running otherwise brand will have bad name on account of closure of store. Advantage of this model is every process is followed closely. No false commitment is done. customer get first hand experience with retail chain. However disadvantage is that irrespective of revenue operational expenses are fixed and increase with time say annual increase in salary or electricty rate increased by government.

2. Franchise own company operated : In this model initial setup cost is born by franchise. Thus company save capex in return franchise is entitled for a minimum guarantee or percentage of revenue earned. This percentage of revenue sharing may vary from 1.5 % ( in telecoms ) to 50 % (in apparel). company born only operational cost. This product is more viable as shutdown cost doesnt result in disappearing of capex or write off of capex.

3. Franchise own franchise operated: In this model company rent out brand to franchise and for this a particular non refundable sum for a pre agreed time period is charged. Prices and merchandising is decided by company. Marketing in national media say print and electronic is taken care by brand. Both capex cost and operational cost is born by franchise. Franchise is assured of minimum guarantee or percentage share of revenue.

Source: http://indianretailsector.com

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