UNIT 6.

TRENDS IN FRANCHISING

Overview
This unit is designed to introduce young people who are taking up business courses
to the fascinating world of advertising in the past and in the present. This unit clearly
addresses the growth of the franchising sector from where it began to where it is
now and the market developments in the future. Furthermore, this unit also
highlights the multi-unit franchise model, its benefits and other positive
characteristics.

Learning Objectives

At the end of this unit, I am able to:

1. Compare franchising in the past and present.
2. Know and understand the concept of international franchising.
3. Understand the principles of multiple unit franchising.

Setting Up
Name:________________________________ Date:_______________________________
Section:______________________________ Score:_____________________________

Directions. Give yourself two minutes to do this activity (let us find the extent of your
familiarity with the franchise businesses). List as many franchise companies that you
can think of locally or even globally. Use the sheet provided in answering.

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Lesson Proper

 THE EVOLUTION OF FRANCHISING (COMPARISON OF FRANCHISING IN THE

PAST AND PRESENT)

How Franchising Started?

Have you ever wondered how franchising began? While most of us are familiar with
our favorite franchises, not many people know the history of this famous business
model.
Brief History of Franchising and How the Industry Has Evolved
Did you know that franchising dates back to the middle ages? It might not be the
exact type of franchising that we see today, but an early model of franchising can be
seen as far back as the early 1500s. During the Middle Ages, the most important
resource was probably food. Following wave after wave of famine, the wealthy
families that controlled the land on which food was grown quickly became the most
powerful people living in a given area.
Some of the first noblemen were given their titles through the monarchy in control
of the area. Specifically, the king or queen would give powerful individuals or
members of the clergy a section of land they were essentially in charge of like a
miniature crown. The first lords were given the power to create armies and levy tolls
and taxes, as long as a portion of the money collected was paid as tribute back to the
castle. This distribution of power is considered by historians to be the first instance
of “franchising.”
The Rise of the Modern Franchise
As of today, the modern franchise business model as we know it can be traced back
to entrepreneur Isaac Merrit Singer, the founder of I.M. Singer & Company. Singer
was the first person to patent a sewing machine that was able to sew 900 stitches
per minute. However, because the sewing machines were priced at $120 each, he
needed to come up with a plan that could allow 19th century Americans to purchase
them. Luckily, he had a partner who came up with instalment plans. But, even with
instalment plans in place, he still needed a better distribution method.
Singer eventually created licensing arrangements that would enable businesspeople
interested in selling his sewing machines to do just that and sell them. Upon signing
a licensing arrangement, the person would pay a fee (for the right to sell the
machines), receive a license for teaching consumers how to use them, and also funds
for manufacturing (that were a direct result of selling the machines.) Inevitably,

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what these "licensees" ended up with was their own businesses (or franchises as we
would call them today.)
Another First Famous Franchisor Was Martha Matilda Harper
One early female franchisor was an also entrepreneur named Martha Matilda
Harper. Sent away by her father at the age of seven to be a domestic servant, Harper
would spend 22 years in this profession before opening her own hair salon in New
York City. The Harper Hair Parlor was unique because it included reclining shampoo
chairs (unheard of at the time), emphasized comfort and customer service, provided
child care, and had evening hours.
Photos of her stunning floor-length hair was her primary advertisement, and
customers flocked to her salon to give their hair a treatment with “The Harper
Method.” In 1891, Harper also offered some of the first low cost franchise
opportunities, allowing salons to open under the Harper name. She also provided
motivation, coaching, advertising assistance, and motivation to build up would-be
entrepreneurs, just like the franchises of today.

Current Trends in Franchising

Franchising has matured since Ray Kroc opened his first McDonald's in 1955 in Des
Plaines, Illinois. First-day sales at that restaurant were $316.12. In 2016, McDonald's
annual sales topped $24.6 billion at nearly 37,000 restaurants in more than 120
countries -- with about 84 percent of those stores owned by franchisees.
Many other things have changed in franchising as well. In its earlier years,
franchising was a place for single-unit owners, content to "buy a job," be their own
boss, and provide a modest income for themselves and their families. Today, more
than half of all franchise units in the United States are run by multi-unit operators,
some with hundreds of units and revenues in the tens of millions. These operators
don't work in their store making sandwiches or traveling from home to home to
provide services. Rather, they manage their company, employing a professional staff
of field and unit managers, while they focus on strategy and growth.
Multi-brand franchisees (those with two or more brands) are also a rising trend.
These franchisees often have maxed out their territory for their first brand and must
take on a second or third brand to continue to grow their organization. Others are
seeking additional brands to provide cash flow for different day parts, or to diversify
their risk by creating a hedge against market cycles, changing consumer tastes, and
shifts in the economy. Others still seek out new geographical markets to expand.
So what are the trends in franchising today? Where are the growth areas? And more
important, where will they be in 3, 5, and 10 years?

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1) Shifting Demographics
Major changes in the U.S. population are affecting not only who consumers are today,
but also the available labor market. Franchisors and franchisees alike must adapt to
this changing customer and employee base to find opportunities for growth.
Millennials -- This generation, whose numbers outstrip even those of the Baby
Boomers, are coming into their own as a potent economic force as they begin their
careers and raise families. This group of more than 70 million - whether as entry-
level employees or as media-savvy consumers raised on the Internet -- present a
huge opportunity for franchisors and franchisees who can provide goods and
services related to their growing needs.
Baby Boomers -- As this "forever young" generation ages, it will demand many new
services: health and fitness programs; financial and retirement planning and advice;
assistance with their aging parents; child care for their younger children and
educational services for their college-bound children; legal and tax services;
nutritional, cosmetic, and "anti-aging" products and services; and more.
Seniors -- People are living longer, more active lives today, a trend that will only
accelerate as Boomers age. This will create a "booming" market for services
demanded by this affluent, expanding demographic. Healthcare-related services,
delivered at home or in assisted living facilities, will continue to grow. Home
renovations for seniors, health and fitness programs tailored to their aging bodies,
and increased acceptance and use of "cosmeceuticals" will expand in the years
ahead.
Minorities -- The U.S. is well on the road to having a "New Majority" as the ranks of
Hispanics, African Americans, and Asians continue to grow. From food to fashion,
real estate to business services, as members of these groups continue their rise in
numbers and economic clout, their needs will continue to expand as well --
presenting new opportunities and challenges for franchise brands focused on
serving them.
2) Growth Segments
What if you could start a franchised business with the guarantee that you couldn't
fail? While there are no sure bets in life or in business, some areas are more likely to
succeed than others.
Recession - proof brands are understandably popular in any economic environment.
These types of businesses include hair cutting, tax preparation, accounting, shipping
and packaging, child and pet care and services, auto maintenance and repair, home
repair and renovation, computer-related services, real estate, and staffing and
employment. The recession that hit home in 2008 drove some operators of fast-
casual restaurants to add lower-cost quick-serve and fast food brands if they could,

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to keep the cash flowing. Used goods concepts, including clothing, sports equipment,
and electronic games also tend to do well in any economy.
"Green" businesses, already on the rise, received a big boost in 2009 with federal and
state governments pushing for increased funding for the energy sector -- an effect
that continued to ripple for years into energy-related businesses. Energy-reduction
services for both homes and the commercial sector will continue to expand. "Green"
(LEED-certified) buildings, made with recycled materials and using less energy
present opportunities for handyman franchises, and as the market matures more
and more opportunities will appear.
Fitness, health, and personal care -- This sector, which includes gyms, fitness centers,
nutrition, recreation and sports, spas, tanning centers, and "healthy" fast food,
provides targeted opportunities for each of the demographic groups described
above. The increase in childhood obesity has given rise to fitness centers and
programs that combine fun and education for the younger set. Baby Boomers have
their own set of needs in these areas, as do seniors, who both need fitness, health,
and nutrition programs tailored to their age group.
No business is free from risks, but having a firm grasp of current trends -- and where
they are likely to go in the coming years -- is a big step in the direction of long-term
franchise success.
Franchising Trends in the Philippines
The Philippine market offers an innately large consumer base that is attractive for
franchise operators. Its strategic location makes the country an appealing option as a
franchise hub to launch a future Asia-Pacific expansion. Additional favorable factors
include: Wide use of the English language, Cultural affinity with American values,
low labor cost, large pool of skilled labor and management talent, and moderately
well-placed infrastructure. The competitive climate that exist in the more urbanized
locations in the country forces new entrants to creatively innovate and adapt quickly
to the environment in order to succeed. Challenges associated with the lingering
political instability, weak currency, corruption, and peace-and-order problems in the
Philippines are serious issues international franchisors need to face head on. There
is no clear indication as to when these challenges will be mended. However, for the
more valiant and aggressive franchisors willing to face the current risks in hope of
long-term gains, and who are prepared to introduce flexible contractual
arrangements, the Philippine market appears to be a unique investment haven.
As we welcome a new decade in franchising, it’s helpful to see how the past 10 years
have helped create a more vibrant economy where Filipinos consumers now enjoy
abundant product variation, technological advancements, investment opportunities,
and on-demand knowledge.

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Here are the top franchising trends of the past decade that have had a significant
impact not just in the industry but in the daily lives of Filipino consumers:

 Food crazes that became Filipino favorites: The decade of milk tea

The last decade marked the rise, the fall and the rise again of milk tea. With its strong
consumer reception, the right question to ask is “Who doesn’t love milk tea?” After
the Philippines ranked second-highest bubble tea drinkers in Southeast Asia next to
Thailand (based on a study by GrabFood), it is undeniable that we truly are crazy
about milk tea.
This trend started early in the decade with brands such as Cha Time spearheading
the craze. However, the rise of milk tea was temporarily halted in 2015 during the
poisoning incident of an independent milk tea operator in Sampaloc, Manila. But
since then, foreign brands such as Coco, Macau Imperial, and Tiger Sugar have
continued to enter the market.
Meanwhile, local brands such as Cha Thai, Sugar Panda, Bean Leaf, Island Tea Co.,
Icelavie, and Caffe La Tea persist to innovate on milk tea signatures and twists that
are performing remarkably well in the franchising scene. With the escalating
demand especially from the youth, milk tea continues to become a favorite both by
consumers and franchisees.

 When we fell in love with shawarma

Nowadays, wherever you go, there is a shawarma stand. You can have it spicy or
cheesy, with beef or chicken, wrapped in pita or on top of rice. Apart from its
flexibility, shawarma really stands out because of its distinctive taste that many
Filipinos fell in love with.
Brands such as Shawarma Shack and Turks Shawarma helped pave the way to
creating a more Filipino-tasting Shawarma. But they also innovated in terms of
marketing, being among the first to use celebrity endorsers, billboards, and TV ads to
build their food cart businesses from a handful to over 400 stores each nationwide.
Aside from these, brands such as JM Shawarma continue to carve a niche in Vis-Min
with over 100 stores across the islands.

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  Fruit drinks as the healthy alternative
With the rising incidence of Filipinos with health-related concerns, the trend of fruit
drinks became popular as they are labeled as the healthier alternative to carbonated
soda and caffeinated drinks. Fruits like mango, lemon, watermelon, papaya, apple,
banana, guyabano, and many more are simply turned into ice-blended drinks that
have attracted health buffs due to convenience and affordability.
Citrus Zone, GuriGuri, Happy Mango, Pure Nectar, and BarefruitGuyabano are among
the most popular brands that have invaded the fruit drink industry in the
Philippines. As the saying goes, “Eat fruits and vegetables as your medicine so you
won’t eat medicine as your food.”

 Making healthcare more accessible

As pharmacies boomed across the Philippines, Filipino’s consciousness of taking care

of their health came at the forefront. This gave rise to more accessible healthcare,
from dialysis centers such as NephroMed Asia Dialysis Center and MEDLINE Dialysis
Center to diagnostic clinics such as Laguna Diagnostics and Qualitech Diagnostic and
Medical Services.
Their development as franchises have made waves in the healthcare industry in the
country as more and more patients are able to receive excellent healthcare and
efficient treatments that were deemed very expensive in the past

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  Education franchises on the rise
“The demand for education in all its forms is a good sign for a country like the
Philippines as it gains momentum towards developed-country status in the next
decade or so,” stated Mr. Manuel Siggaoat, managing director of Francorp
Philippines, in an article he wrote about the top trends in Philippine franchising back
in 2015.
The Canadian Tourism and Hospitality Institute (CTHI), Tinker House, Seriously
Addictive Mathematics (SAM), ALOHA Mental Arithmetic, and Bricks 4 Kidz are
franchises that enhance learners’ competitiveness, creativity, critical thinking, logical
reasoning, problem-solving, and other important skills beneficial for potential
discovery and career development.

 The rising need for convenience

With the rising rate of urbanization, consumers have never been busier and more in
a hurry. This has led to growth of businesses delivering more convenience to
customers. From the growth of convenience stores to home service cleaning, to the
rise of self-service laundry franchises, this convenience trend is set to continue into
the new decade. And franchising is poised to continue playing a big role in allowing
more brands to create branch networks closer and more convenient to customers.
 INTERNATIONAL FRACHISING

What is International Franchising?

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International franchising is a strategic way to reduce dependence on domestic
demand and grow new, future revenue and profit centers worldwide. Extending a
brand globally through franchising involves low risk, requires minimal investment,
and offers a huge upside potential for scaling capabilities.
Benefits of International Franchising
In addition to entering new overseas markets with additional customers,
international franchising can also offer what is called foreign master franchise
owners. These individuals are typically a native of the country and understand the
political and bureaucratic problems in his/her country far better than any outsider.
Foreign master franchise owners pay a hefty upfront fee to acquire a designated
geographic area or, in some instances, an entire country where they operate as a
mini or sub-franchise company, selling franchises, collecting royalties, training the
owners, and overseeing all other related matters. They can even open units by
themselves. In general, a specified number of franchises must be outlined for the
exclusive right to use the business model in an entire country.
Some Companies That Franchise Internationally

 Domino’s Pizza International, Inc. began serving consumers outside the

United States in 1983 when the first store opened in Winnipeg, Canada. Since
that time, Domino’s Pizza International has extended its global reach to
include more than 55 international markets serviced by more than 3,230
stores. The company claims, “The success of Domino’s Pizza outside the U.S. is
due to the collaborative relationship between our exceptional franchisees and
the corporate team that supports them. Together, we continuously strive to
support a policy of 'One Brand–One System' in order to be the best pizza
delivery company in the world.”

 McDonald’s, another fast-food giant, does business in 119 countries around

the world. For those markets where McDonald’s does not already have a
presence, Afghanistan, for example, the company does not have any firm
plans to open locations in these countries. The company says it is instead
focusing on the markets where it already has a presence.

Getting Started with International Franchise

The best place to look for getting started is the International Franchise Association.
It can help you with the first steps to take and what opportunities are available in the
global marketplace. As in any new international expansion, there will be challenges:
cultural differences, legal considerations, contract negotiations, and intellectual

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property issues, to name just a few. Of course, the process is not without its
complexities.
Where to Look for Franchising Help?
Here are a couple of resources that will guide you in the international franchising
area:

 International Franchise Association - considered the go-to source on anything

to do with franchising–from country profiles to international franchising
articles to information on international franchising laws.
 Franchising World - offers digital versions of Franchising World issues and
archives of past Franchising World articles.
 DLA Piper’s FranCast Newsletter - DLA Piper is considered the No. 1 global
law firm in the area of franchise law by Who's Who Legal and is ranked the
top practice in the United States by the respected research firm Chambers &
Partners. Be sure to subscribe to its popular FranCast newsletter.
 International Franchising - a Practitioner’s Guide by Marco Hero, offers a
practical guide for all those involved in planning and operating an
international franchise program–from in-house counsel to managing
directors to those in private practice.

 MULTI-UNIT FRANCHISE
Definition of a Multi-Unit Franchise
A multi-unit franchise is when a franchisee purchased the rights to develop and
multiple units in a particular territory. When you own multiple units, you are less
likely to be involved in the day to day operations of a single unit. You will instead be
focused on the overall management of all of your units. You will need to have general
managers and staff you can trust at each of your units to make sure they are
successful.

Multi-Unit Franchise vs Single-Unit Franchise

As a multi-unit franchisee, you will sign an area developer agreement, which outline
the number of units that you agree to open and in what time period and in what
specific territory you will do so. Typically your territory is protected from
encroachment unless you don’t fulfil all your agreements. If you don’t stick to the
schedule laid out in the agreement, you could be at risk of losing your rights to open
any more locations under the agreement.

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A single-unit franchise means that you entered into an agreement with a franchisor
for just one franchise unit and no expectations for later expansion into multiple
units. Many single-unit franchise units are owned by people interested in owning
their own business, but are not looking for or don’t have the capital for a larger
enterprise.
With single-unit franchises, the franchisee is usually the main operator of the unit
who runs the day to day operations. With a single-unit franchise, there is only a
single franchise agreement between the franchisor and the franchisee.
Keep in mind that entering into a multiple unit contract is going to mean more
money from you upfront. Whatever you would pay for one unit just multiple it by the
number of units you are interested in owning.
For example, if each franchise unit is P175,000 and you want to own 5 of them, you
will need to make a P875,000 investment. And then you will have to factor in the
ongoing costs for each franchise unit you own like payroll costs, rent, and inventory.
Advantages of a Multi-Unit Franchise

 For the franchisor, selling a multi-unit franchise means better financial

security because small operators of one or two units tend to struggle more in
economically tough times. Also multi-unit franchisees tend to be more
experienced at running a business and already have strong relationships with
realtors and vendors making it easier to rapidly expand the franchise.

 For the franchisee there are a lot of benefits in this type of franchising
opportunity as well:
Lowers Your Overhead Expenses Per Unit
While the initial start-ups costs will be higher for multi-units, once your units
are established, you will be able to lower your overhead expenses per unit
because you will have some fixed costs that will be shared across all locations.
For example, if all your locations will share the same vendors, then you will
be able to negotiate better deals for goods and services.
Offers You Better Stability
We have heard the horror stories of new franchise businesses folding in the
first year. That is a big fear for new franchise owners, but it doesn’t have to
come to fruition to a franchisee. And part of your plan is to start with multiple
units right from the get go thus improving your chances of success. Each of
your units can help buoy each other up if lean times hit.
It Is Not As Expensive As You Might Think

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 While you will have to spend more money at first, it might not put you in the
hole as much as you might think. Franchiser owners often offer discounts and
incentives to their franchisees if they purchase multi units. If you know you
want to eventually expand anyway it might make sense to buy them now at a
lower cost.
Helps You Establish A Stronger Brand
The franchisor will be providing you with some marketing and advertising
messaging to help attract customers, but the great thing about owning multi
units is that you can establish your brand within the larger brand, but
showing the customers what makes your multiple units stand out from the
rest. And because you will want the same central message across all three
units, you will be able cut down on the money spent of advertising and
marketing.
Will Help You Establish Stronger Relationships
Another benefit of owning more units is that you will develop more contacts
in the franchise world and with vendors and real estate agents.
References
https://www.thebalancesmb.com/international-franchising-a-global-strategic
https://www.thebalancesmb.com/multi-unit-franchise-1350579
https://www.franchising.com/franchiseguide/current_trends_in_franchising.html
https://www.franchisemarket.ph/blog/10-business-trends-philippines
https://www.franchising.com/articles/the_evolution_of_franchising.html

Assessing Learning

Name: __________________________ Date:_________________________

Section: _________________________ Score:________________________

I. Research Work
Directions: Choose at least one local and multinational business that has embraced
the multi-unit franchise model and flourished in the franchising industry. Give the
historical business history and the advantages gained by embracing the multi-unit
franchise model. Cite also some of the strategies that have been taken to develop and
retain its place in the industry.

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