Franchise executives innovative thinking
Challenging times call for innovative thinking and problem solving. I was interested to read today in a section of the Wall Street Journal that Dominos Pizza is considering making loans available to its franchisees. This will allow franchisees to gain access to capital and not suffer from the limiting affects of the credit crunch in the US economy. Extract from Wall Street journal below:
“Domino’s Pizza Inc. discussed how its borrowing capacity has been hampered by Lehman Brothers Holdings Inc.’s bankruptcy filing. With the credit crunch weighing heavily on the restaurant industry, Domino’s said it will save its cash and potentially make loans directly to its franchisees.”
Franchisors can often become well capitalised due to the nature of how capital flows though franchise networks. It functions in the following way. A franchise buyer will purchase his franchise business and in return gain access to the franchise owners know-how and use of protected trade marks. It is by following this know-how or system that will help secure the franchisees business success. In addition to the know-how the franchisee will also receive support and training from the franchisor. For the services and benefits outlined above the franchisee will pay a management service charge (MSC) or royalty to the franchisor each month. This system helps ensure a win-win relationship between the franchisor and his franchisees as both gain as incomes rise. This model of payments and income helps protect the franchisor from the affects of economic downturn as he is receiving regular royalty payments from a number of franchisee businesses. This can result in the franchisor being well capitalised and in some cases being able to lend to franchisees. Not all franchise owners can or will lend to their franchisees. Either way this story shows the innovative thinking being implemented by franchise executives on behalf their franchisees and the company’s shareholders.
Business and franchise executives are often innovative. What works in one market often follows on into other markets and that includes the UK franchise market.
