Franchise business has seen immense growth in the past few years, with more and more expanding to different locations across global destinations to widen their customer base and profitability. Brands in industries like beauty, apparel, fashion, food & beverages, etc. have been at the forefront of the franchise business expansions. Not just these, but many other industries have also adopted the franchise strategy.
Although brands are adopting the franchise business strategy for the expansion of their business, there are some challenges and opportunities that you need to be aware of before getting into the franchise business.
So, here we have listed a few opportunities and challenges of getting into the franchise business.
Opportunities for Franchise Business
Firstly, let’s get started with the opportunities or advantages of franchise businesses.
1. Experience of Brands
When you are buying a franchise, it will also help you leverage the franchisor’s years of experience. The franchisor brand has already been in the business for years and knows detailed insights about the industry.
This is an excellent opportunity for the person who is buying the franchise. He will have to spend less money and effort on the research and access to proven and feasible business strategies.
2. Leverage Brand Image
This is one of the key advantages as when you start a new business at that time, you don’t have an existing brand image or credibility in the market, whereas it is different in a franchise business. Franchise business is like an expansion of an already successful existing brand’s business. So, this helps in bringing positive brand images and credibility along with the business.
For example – If you buy a McDonald’s franchisee, you will get a superlative brand image of a fast-food chain that millions of people already know about, so you will have customers coming in instantly as you start your business.
3. Marketing Support
This is also a key opportunity as when you set up a franchise business; the franchisor also wants his franchise to succeed so that they can also earn maximum revenue along with you.
Therefore, the franchisor will provide immense support in your franchise’s advertising and marketing to attract maximum consumers. This is advantageous as the franchisor is already experienced in this domain and knows where to invest for maximum returns.
It will bring positive outcomes and financial benefits for your business. Also, it will help you build local brand awareness and get an initial push for your business.
4. Training, Research & Development
As you are buying a franchise for an existing brand so the franchisor will provide you and your staff with the appropriate training so maintain the premium service standards and understand the business procedures in depth.
The franchisor has continuous research and development going on a large scale to make the services better and deliver premium products to the customers.
So, this will bring the best products and services to your business without any cost leading to your franchise expansion and positive growth.
The Challenges of Franchise Business
Now that you have explored some of the opportunities, it is time to acknowledge the challenges of the franchise business.
1. Seed Capital
Seed capital here means the franchisor’s initial investments from the franchisee to start the business. Franchisors ask franchisees to infuse seed investments to make the business operations at the start.
This amount can range from lakhs to crores depending upon the franchisor’s business and requirements. So, it is a huge challenge for the franchisee to accumulate and invest such a huge amount in the initial phase.
Although you can recover the investment once the business is profitable, it has its risks. Also, this amount gives a buffer against any unexpected or expected setbacks.
2. Infrastructure & Human Resource
Most of the franchise businesses come from western countries, and they have specific requirements for infrastructure and human resources.
The infrastructure needs to align with the brand’s identity, image, and other factors that can lead to the franchisee’s rigorous efforts and investments.
Human resources are a key challenge as different countries have different cultural values and differential consumer behaviour so hiring the right staff is a hectic task. As these people will be the representatives of that brand so any setback or wrongful act by staff can hamper the brand image and business immensely.
3. Competition & Consumer Behaviour
The competition in every business industry is increasing rapidly, especially if we talk about the franchise business. The competition is rising as more and more brands are now expanding their business.
The rising competition among global brands and the rise of local businesses in the same industry lead to tougher and more challenging operations and customer acquisition.
Also, consumer behaviour is ever-changing, so that comes as a big challenge for the franchise business. For example – now more people focus on eating healthy food, which has impacted the sales for fast-food chains in recent times.
4. Socio-Political Environment
Every country or location has its unique socio-political environment that impacts the businesses of that location. So, one needs to consider how they will encounter the socio-political environment.
Like in India, there’s a hype around the use of locally made products. There has been tension within the neighbouring or other countries that were exporting products to India heavily.
So, this can impact the business as well; therefore, it is essential to forecast and research the socio-political environment and its possible impact on the businesses.
These are some of the key challenges and opportunities that lie within the franchise business environment.
If you are considering taking on a franchisee, you must acknowledge and understand these opportunities and challenges. Then you can formulate a strategy that will help you support your franchise business.
A franchise business has an immense potential to earn huge profits, but it is about finding the right gateways and using the right opportunities.