Lately I’ve been wondering why companies franchise? What makes some companies successful and others not? I have asked countless entrepreneurs about this and the answer in general has to do with the false idea that you are going to put others to work for you and you are going to get rich in the short term. Franchising is all about the words “Support and Share”, supporting others to succeed with a business model that made you successful and sharing the secret of your success with others. Franchising is achieving a virtuous partnership where your franchisee partners invest their time, money and work, under your direction and support, and together they manage to reproduce the success of your brand in the medium term and thus serve more customers in more cities, taking over the market. before your competition.
Of course your work and that of your work team will have to change completely. Now you will be the one who does research and development, trains and supports your partners; The times of being an operator will have to be left behind and ahead is the conquest of new and better markets, always with the idea that the success of your franchisees is the success of the brand. If the franchised units are not successful the franchise program is doomed to fail. Generating a new franchisee for the system is much more expensive than developing an existing franchisee to become multi-unit and regional.
A few days ago I had the opportunity to be at the Latino Franchise Symposium, one of the two most important events for Latino franchise companies in the United States (the second will take place in New York on August 4 and 5, the Franquicias Fest and will be in charge of the Latino Franchise Association), which takes place in Dallas Tx at the world headquarters of the largest franchise-managing restaurant group in the world, YUM Brands. YUM Brands counts among its main brands KFC, Pizza Hut and Taco Bell among others and already has more than 50,000 units in its network worldwide, of which 99% are operated by independent franchisees. In two spectacular buildings with offices, school stores, facilities for workers, and all kinds of amenities for employees to feel in a comfortable environment, more than 700 people work dedicated solely to providing support services to the franchisee network. Once the symposium ended, in the company of the group of businessmen who accompanied me from Mexico, we began the tour of the facilities. During the tour, my good friend James Fripp made a lot of emphasis on the company’s mission, which contemplates 4 large groups, the first -without a hierarchical order one above the other- of course the clients (delicious food, experiences that can be shared and accessible to all), the second, the collaborators (a great place where you can develop freely, grow and make a difference), the shareholders (global investment in a diversified portfolio with strong returns and long-term value) and finally he pointed out a picture in which he told me: I bet you have never seen this part of the main mission of a company”, the franchisees (profitable and growing association with the best franchise operation). This wall where the company’s mission is mentioned is located at the entrance to the complex on a large wall 4 meters high, so that all employees can see it when they arrive and when they leave. “We take franchising very seriously,” James ended by telling me.
My sensei Luis Luna once told me that the success of a franchisee network was in achieving lasting franchisees. Listening to him, I began to reflect on what he meant by the word “enduring”. I gave myself the task of understanding why in Latin America we did not have large chains like in other developed countries in terms of franchising and the conclusion was related to the same paradigm mentioned at the beginning, I stay here in my restaurant while others work, this added to The lack of preparation and involvement in the task of supporting the network means that the franchise project lasts very little (average less than 5 years in Mexico) and the franchised units close in the short term, that is, they are not lasting. and with the consequent deterioration of the brand. That is why with the initial reflections of Engineer Luna, experiences lived with various franchisors and my own in my franchised units, I was building a phrase that I consider encompasses the general idea of what franchising should be and that I invite you to reflect on: The success of a Franchisor company is found in generating support systems and programs for the network of franchised units in order to have financially successful, multi-unit and enduring franchisees with the brand in the long term.
Franchises are not magic, they are like any business and involve risk, even the big chains have failures. According to the Wolf of franchises portal in its December 5, 2022 edition, it mentions the 10 big failures of big franchises in 2022. Here I mention some of them. Quiznos in 2007 had 5,000 stores, now they only have 200; in 2004 bluckbuster had more than 9,000 stores, a decade later they were extinct; Howard Johnson was once the largest restaurant in America in the 1960s and 1970s with over 1,000 locations, the last Ho-Jo’s closed in March 2022. The bottom line is that treating franchisees as a source of royalties and not as partners, will inevitably lead to the failure of the system.
According to the CEO portal, “Subway does not own any store and has a network of more than 21,000 franchisees in more than 100 countries around the world.” But what makes Subway able to manage such a large network of units around the world achieving standardization, while other brands try to franchise without success? Of course, a corporate in Miami dedicated 100% to franchising. Let’s look at some key factors of the brand:
operating model. A simple and standardized operation with processes that do not require highly specialized personnel. A standardized production line with a simple product to “assemble”
Supply chain. A network of providers that guarantee opportunity and cost to the entire network throughout the world. The corporate team is always in constant innovation to make the operation increasingly simple and to achieve suppliers that guarantee the cost.
Network of regional supervisors/owners. Subway was the first to develop its own franchisees to support locally in site selection and in supervising and supporting the units by sharing the royalties collected by the corporate. In this way, it has an army of advisers around the world who know the market and are close to the network of local franchisees.
Fred DeLuca died in 2015 having achieved what is today the largest franchise in the world with more than 48,000 units. His widow Elisabeth DeLuca, 75, debuted on the Forbes World’s Billionaires list in early April 2023. “If you get too happy about some things, or too sad about others, you’re going to end up very tired,” he said. DeLuca once, after passing away being one of the richest men in the world, without having his own units, without selling anything to the chain and dedicated 100% to serving the chain and strengthening the brand throughout the world.
Franchising is not for everyone; It’s not cheap, it’s not fast, and it’s not easy. It requires a total transformation of both the brand owner and the company. Do not be fooled, 8 paper folders, beautiful manuals and a macho contract that an external consultant – who never stopped at your business – throws you on your desk will not magically turn you into a franchisor. YOU have to transform your company. Are you willing to transform YOUR life?
The Franchise Czar – FranchiseZar –
I hope this weekly collaboration is useful for you and your business. Remember to visit my YouTube channel “FranchiseZar” where you will find a great collection of business, franchise and entrepreneurship issues. Listen to me on the FB channel of LA FORMULA DE LA FRANQUICIA every Wednesday at 5:00 p.m. cdmx. Interested in acquiring a franchise? Ask FranchiseZar® and #notedejessoprender. Your friend the Czar of Franchises says goodbye to you, see you in the next one.
Jorge Valencia L.
President of the Latin American Franchise Institute.
CEO Grupo Interfranquicias Mexico & Latin America.
Better known as the Franchise Czar and/or FranchiseZar®
30 years in the world of franchises and business. Specialist consultant in gastronomic franchises and cafeterias. International speaker with more than 500 conferences, workshops and seminars on franchise and entrepreneurship issues. He has traveled throughout much of the world learning and spreading the franchise model. He has the Certified Franchise Executive Certification in the USA by the International Franchise Association (degree of international excellence in franchising). Master’s in Franchising at Nova University in Miami. Master in finance and administration. University professor. Creator of the concept The Franchise Formula. Radio and TV host. Tireless traveler and reader. Just good Mexican coffee. Mezcal to share. Movie buff, connoisseur, music lover, beatlemaniac and 100% dallas Cowboy.