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  3. > Franchising: Foodservice and hotel companies grow using franchising

Introduction

US-based companies have used franchising as a route to expansion for many years. While the business system franchise model is only viable in certain sectors, such as foodservice and lodging, some companies are now almost exclusively franchisors, not owner-operators. This Case Study explains why the model is so attractive to franchisors, and also explores some of the downsides.

Features and benefits

* Discover what business system franchising involves.
* Examine the roles of franchisor and franchisee in the US quick service restaurant sector using value-chain analysis.
* Find out about the benefits and risks associated with franchising in the US lodging sector using SWOT analysis.

Highlights

Major franchisor companies' market capitalization has been outperforming the S&P 500 index for several years.
A value-chain analysis of Burger King shows that the primary activities of Burger King itself are not the same as the primary activities of the whole system. The system is a foodservice provider, but Burger King mainly provides intellectual property: product design, branding and marketing, and business process development and training.
•A SWOT analysis of leading US hotel chains reveals the advantages of multi-brand franchising in defending revenues in a cyclic industry and expanding into developing markets. It also suggests that finding reliable franchisees with good access to credit, and defending intellectual property in certain countries, may be key challenges.

Your key questions answered

* What is business system franchising?
* What characteristics of an industry make it a good candidate for expansion through franchising?
* Why do so many US quick service restaurant chains operate on a franchising model?
* What are the risks of franchising in the US lodging industry?

Table Of Contents

Franchising: Foodservice and hotel companies grow using franchising
O VERVIEW
Catalyst
Summary
MAJOR US FRANCHISOR COMPANIES CURRENTLY OUTPERFORMING SandP 500 INDEX
Product distribution franchising is similar to a supplier-dealer relationship
Business system franchising replicates an operational model in many locations
Franchising is significant in several industry sectors in the US
FRANCHISING WORKS BEST WITH UNIFORMITY, STRONG BRANDS, LOW CAPITAL INTENSITY, AND PHYSICAL OUTLETS
The company has a very uniform product range
Brand strength is an important asset
The industry is labor intensive, with a predominantly low-skilled work force
Online transactions are not a significant threat in the industry
Centralized back-office functions offer a significant economy of scale
VALUE-CHAIN ANALYSIS OF BURGER KING HELPS EXPLAIN ITS FRANCHISING STRATEGY
Primary activities are those in which value is created directly
Secondary activities support the company's primary activities
Burger King has little involvement in the primary activities of the system
Its own primary activities are focused on intellectual property
Moving restaurants from company-owned to franchised has been accompanied by rising profits
Burger King uses franchising to expand internationally
SWOT ANALYSIS REVEALS ADVANTAGES AND DISADVANTAGES OF FRANCHISING IN HOTEL INDUSTRY
Strengths: strong brands, diverse geographies, established franchise model, technology
Weaknesses: often company-specific
Opportunities: emerging markets
Threats: franchisees must be managed, may have difficulty accessing credit, weak intellectual property protection
CONCLUSIONS
Franchising is a good business model in specific circumstances
APPENDIX
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