With franchising, you use a proven business model and adopt it for a fee. Although franchisees are self-employed, they do not run an independent business and are bound by the guidelines and regulations of the franchisor. Franchising works primarily in the catering sector, with fast food chains such as McDonald’s, Starbucks or Subway. Simply explained: what does franchising mean? Plus examples, advantages and disadvantages and a checklist of what franchisees should definitely pay attention to…
What does franchising mean in simple terms?
Franchising is a partnership-based distribution system. A new company (franchisee) takes over the established business model of an existing company (franchisor) against payment of an ongoing fee (license). The franchising partner may use the name, design and business idea of the franchisor for a specified period of time. You could also say: With franchising, you rent a successful business model and can legally imitate it.
The most important features of franchising
- Proven business model
- Use against license fee
- Cooperative sales as a brand chain
- High notoriety through multiplication
- Partnership success
The decisive factor in franchising is that the franchisee remains legally independent with this business concept. It is not a “branch”, but a kind of concession sale – i.e. a form of indirect sales. Both parties – franchisor and franchisee – are contractually bound to each other. However, the franchisee may not change the business model, logo, design, online shop or products.
Franchising examples for Kenyans: meaning and concepts
The best-known franchising examples in the world include the fast-food chains McDonalds, Burger King, Subway, KFC (Kentucky Fried Chicken) and the coffee chain Starbucks. All of them license their business concept to franchisees, who implement it independently according to precise specifications at selected locations.
Franchising in Kenya includes franchises such as KFC, Dominos, Pizza Hut among others. Carrefour is also another franchise in Kenya. Of course, as you have seen the most common franchises are fast food franchises in Kenya.
Franchise offers exist in these sectors:
- Bakery products
- fashion + jewellery
- cleaning + repair
- tanning salons
- language schools
- travel agencies
- adult education
The goal is always that both sides benefit from franchising. The parent company provides proven rights of use for a fee, offers training on the concept and insights into a successful business plan, researches the best locations for the restaurants or shops and usually also takes on the central advertising for the chain. Conversely, the subcontractors and licensees undertake to comply with specified standards in order not to damage the brand.
Franchising pros and cons in Kenya
Franchising model in Kenya is not a jack of all trades. It has both advantages and disadvantages for franchisees to be aware of before signing a franchise agreement.
Benefits of franchising in Kenya
- No idea
Founders or the self-employed do not need their own business idea for franchising. You simply use a success model and a proven marketing strategy. This makes the step into self-employment and starting a business particularly easy.
- Low risk
As a franchisee, you take on a functioning business model. You will also have an experienced franchisor at your side. This significantly reduces the business and success risk, and planning security increases.
- Well-known brand
You also benefit from a brand that is already established in the market. You don’t have to laboriously build up awareness, image, customers and fans.
- High level of trust
Due to the high level of awareness and the proven business idea, you will immediately enjoy better creditworthiness with banks and other business partners.
- Inexpensive purchasing
There are purchasing advantages through the chain: The costs for raw materials and ingredients can be reduced through central purchasing.
Disadvantages of franchising in Kenya
- Little leeway
Because franchising chains usually strive for a uniform brand image, there is hardly any room for your own ideas, participation or creativity. As a rule, brand management remains the responsibility of the franchisor.
- Expensive/High fees
The more successful the model, the higher the license fees. You sit in the nest you have made, but you also have to pay a fixed percentage of your profits monthly to the franchisor and originator.
choice of location You can seldom freely choose the location of your branch. For example, McDonald’s is not really a restaurant chain, but a real estate company that rents and leases its stores to franchisees. This provides significantly higher income than a few percent of burgers.
Franchise checklist in Kenya: What do you need to look out for?
There are many franchise systems in Kenya with different programs and contract clauses. And for some, the advantages for the franchisor clearly outweigh the disadvantages. In the extreme one can even speak of a rip-off. Most franchisees fail after a few years because of this. The quality of the chains varies considerably. If you are interested in franchising in Kenya, you should pay attention to the following points (check which applies directly online):
- market success
If things go well, you will become attached to the franchise concept for decades. So check whether the model has not only been successful in the past, but also has a future.
- Equity capital
How much equity is required to participate in the chain? Some franchising companies ask their partners for for several millions plus other monthly fees. The potential gain should be well above that.
- property rights
Ask the franchisor for written proof that the brand name and company logo are registered. Otherwise there is a risk that a competitor will claim it and the business basis will be lost.
- added value
The franchise chain must have a clear competitive advantage that goes beyond the product: atmosphere, service, product quality and store design create an unmistakable identification with the brand that attracts customers.
The contract should run long enough to recoup the capital invested. Up to 10 years are common, with the option to extend by 5 years.
- price maintenance
The headquarters may not dictate to the members at what price they have to sell the products. This violates the law against restraint of competition. However, non-binding price recommendations are permitted.
The franchise fees must be offset by concrete considerations such as location analyses, marketing, training and controlling. There should also be a network that supports each other. A sure indication of quality are several satisfied partners, who ultimately make a decent profit.
Education and training should be a matter of course for new franchising partners. The same applies to long-term support based on experience. Be sure to check confirm about this and always and request for information. If a franchisor cannot meet this requirement, tread cautiously.
There you have it. With this article you should have most of your answers regarding franchising in Kenya answered. You should take an initiative and conduct research to identify the best companies to franchise in Kenya because they all do not come cut in the same size.