Franchise Structures

By Martin Mendelsohn

In the last of my series of articles based on the basic issues to be considered when expanding a franchise system into other markets, I want to discuss Structures.

Structures

These are three basic approaches

1. company owned stores
2. direct franchise
3. indirect franchise

Company owned stores is self explanatory. Successfully done, one has the option of expanding the system by adding more or using the success of those stores to launch a franchise system. This can be a costly exercise as well as being difficult to establish without a substantial drain on resources.

Direct franchising involves the grant of a franchise to a local business to open its own store or a number of stores (the latter would be what is called a development agreement.)

Indirect franchising usually involves the grant of the right by a Master Franchise Agreement to a third party to open its own stores and to grant sub-franchises to third parties. Essentially the master franchisee becomes the “franchisor” in the territory. This is the most common method of international franchise development which is used.