Franchising Is Dead. Long Live Franchising

Date: 13/05/2019   l   Category: Retail

 

Franchising has existed because:

  • Brand owner wanted to grow business in a new geography
  • Target new customers
  • Didn’t want to risk investing capital
  • Get a very high return on capital by making a wholesale margin and brand royalty

All this was justified by:

  • Franchisee who invests capital will work extra hard (to get a return )
  • Knows the customer
  • Knows marketing  
  • Exclusivities enabled price premiums – customer paid

The digitization of retail changed everything:

  1. Brands became more responsive to disruption threats.
  2. Customers are supplier agnostic willing to buy from anywhere
  3. Franchisors are keener on preserving returns by sustaining sales versus building the business
  4. Geographic boundaries disappeared (cross border e-commerce)
  5. Price arbitrage opportunities dried up
  6. Compression of supply chains (reduction in intermediaries) and value chains (just in time retail) exemplified by Zara
  7. Brands invested in digital assets. Franchisees couldn’t (and can’t)
  8. Brands know more about customers than franchisees

Quicker the brands and franchisees adjust to:

  • Non-exclusive contracts
  • Moderate margins and returns
  • Global pricing parities
  • Right merchandise (a lost digital native doesn’t come back)
  • Investment in digital assets