Basics Of Starting A F&B Franchise in SingaporeThursday, June 02, 2016
Hello! Decided to share some basic information here since this is something a lot of people has been asking me about. I guess that means that more and more young people are interested in starting their own business (which I feel is a very good thing)! I personally feel that franchising an existing brand is a great way to experience running your own business with a strong team of people supporting you.
So how exactly does a franchise work?
(I'm only referring to the F&B industry for this post since I've no experience in franchising from other industries)
1. Franchisor / Founder
This usually refers to the founders of the brand, they are the ones who set the rules and have the power to decide whether or not to sell you a licence to run a business under their brand name.
Usually once a brand is stable and successful, the founder will start selling licensing rights to people who are interested in opening a store in the same country using their brand. In this case, the founder is also known as the franchisor and the one purchasing the licence is known as the franchisee.
2. Master Franchisor
The master franchisor comes into play when a brand is doing so well they decide to expand overseas. Most founders prefer selling the licence rights by either country or city to a master franchisor for a high licensing fee, and in turn the master franchisor will have the rights to sell the brand by store to franchisees who prefer to only own one or two shops in that country/city.
** So for Churro101 Singapore, my company is currently the Master Franchisor. That means if someone is interested in opening a Churro101 store in Singapore, they will have to pay us a franchise fee to buy the rights to open that store in this country. - (email email@example.com for those who are interested in franchising Churro101!)
A franchisee is someone who is interested in opening just one or two stores under an established brand. This is a great way to enter the industry and experience running a business with lower costs and a support system already in place.
This is another form of franchising where the franchisor and franchisee work out an agreement to co-invest in a new store or expand into a new country together.
Some things to consider if you are planning to buy a franchise:
The franchise fee varies greatly from brand to brand, but it is usually 5 or 6 figures depending on whether you are buying the franchise for one store or for an entire country. Currently the most expensive brands to franchise are probably Mcdonald's, Starbucks and KFC.
A lot of people don't realise this, but the franchise fee is actually a pretty small part of your capital! I've had some people asking me for the price of franchising a shop from us, and at first they are like "oh okay I can easily afford that!" but they forget that the cost of supplies, employment, rent and construction costs in Singapore are really high and all these will add up to a lot more than the franchise fee. Also, in almost all franchise contracts, the franchisor will usually require the franchisee to pay them a percentage of their monthly sales as part of the franchise fee. It might not sound like much at first, but if your business is doing badly and you are making a loss, you will still need to pay and that will add on to your costs.
A franchisor will not only earn from the franchise fees, they will also earn through selling of supplies and machinery. It is very normal for a franchisor to request that you buy certain supplies or machinery through them and mark up the price, so don't feel like you are being cheated when that day comes!
All in all, I hope this article is helpful to those who are interested in the business of franchising. Even though the risks are high and it is definitely capital intensive, if done properly the rewards are great and the experience is priceless. I've never regretted entering this industry and hope that if you do you will love the experience too!
If you've any other questions you can leave it in the comments below or email me and I will try my best to answer as soon as I can ♥︎
**More reads - Great article on franchising -> http://www.businessinsider.sg/4-things-know-starting-franchise-business-singapore/#.V1AqKzeLfww