What is a franchise? Definition and examples


A source of profitability and an expanding economic model, the franchise  appeals to many entrepreneurs who want to start their own business. In 10 years, the number of franchised stores has almost doubled: in 2017, there were already nearly 75,000 franchises in France, for a turnover of nearly 60 billion euros!

Common in practice, however, it is not always easy to understand precisely what franchises are. Franchisee, franchisor, franchise network, franchise contract… all these terms are related to franchising but refer to different concepts.

What is the deductible?

If the word “ franchise ” is frequently used, it is not always easy to answer the question: “What is a franchise?”. To enlighten you, let’s start with a simple definition of a franchise.

Franchising is a contract by which one person (the franchisor) concedes to another (the franchisee), the right to use all or part of his intangible rights (trade name, trademarks, licenses), in exchange for which, the franchisee pays royalties which often take the form of a percentage of its turnover. There are franchises in various and varied fields, for example it is quite possible to open a bakery as a franchise .

Franchise essentials

The franchisor  : the franchisor is a merchant who authorizes another person to use his trade name or  trademark, in return for a sum of money. The franchisor is often a company that has already experienced commercial success: thanks to specific technologies and/or techniques, it has already been able to conquer a market. He will then make his skills available to the franchisee so that he can reproduce his success elsewhere.

The franchisee  : the franchisee is the one who benefits from the availability of a brand or a license. Legally, he is independent and can be a natural person (for example an individual entrepreneur)  or a legal person (for example an SAS). Its role is to represent the brand of the franchisor at the local level. For this, it reuses the organization and methods of the franchisor.

Franchise network  : a franchise network is made up of all the stores using the same brand. For example, all “McDonald’s” fast food outlets  are part of the same franchise network, that of the “McDonald’s” brand.

Franchise store  : we speak of a franchise store when a store is part of a franchise network. For example, if you open a “Zara” clothing store on the Champs Elysées, it will be a franchise store belonging to the “Zara” franchise network.Franchise agreement  : to open a franchise store, it is necessary to conclude a franchise agreement . The franchise contract organizes the relationship between the franchisee and the franchisor (price and duration of the provision of a license, conditions of sale of products, etc.). For example, if you want to open a Bio c’ Bon franchise store, you will need to enter into a franchise agreement with Bio c’ Bon.

The distribution franchise  : it consists, for the franchisee, in selling in a store products under the brand of its franchisor. For example, “H&M” stores are part of a distribution franchise.

Service franchise  : the franchisee provides services using the franchisor’s trade name or brand. For example, “Franck Provost” hair salons  are part of a service franchise.

Industrial franchising  : the franchisee manufactures products on behalf of the franchisor by following his instructions, and distributes them under the franchisor’s brand. For example,Yoplait and Danone products are produced and distributed locally, through industrial franchise contracts.

Franchisor and franchisee: what are you bound by?

After following the steps to open your franchise , as a franchisor or franchisee, you must meet a number of obligations.

The franchisor is required to ensure that the franchisee will be able to use its brand or trade name under good conditions . To do this, he must in particular provide pre-contractual documentation called the pre-contractual information file (DIP) allowing him to know, for information purposes, the expected profitability of the company, transmit his know-how (technology, mode of operation, etc.) and provide training and inform the franchisee of market developments.

The franchisor must also provide the franchisee with  technical and commercial assistance allowing the proper implementation of his franchise, throughout the duration of the contract. This allows the franchisor to have an eye on the franchise and its consistency with the original brand and the franchisee to follow all the evolutions of know-how.

In return, the franchisee must in particular use the know-how acquired to distribute the brand in a territory,pay its royalties to the franchisor (often corresponding to a percentage of its turnoverbusiness) to remunerate him. Also, if the franchise contract so provides, he will have to obtain supplies exclusively from his partner and/or assume certain advertising costs.

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