Franchising: Advantages and Challenges

This assignment delves into the world of franchising, requiring a comprehensive analysis of its advantages and disadvantages. Students must examine various factors influencing the success or failure of franchisees, drawing upon relevant literature and research. The goal is to provide a balanced perspective on franchising as a business model, highlighting both its potential benefits and inherent challenges.

Franchising
716FRAN
AQF Level 9
ASB
The Raw Kitchen Fremantle
Word count: 2000
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EXECUTIVE SUMMARY
This is a research on business development and growth options, i.e. either to franchise or
open and own a completely new business. The report consists of four main sections which
are: the introduction, discussion, conclusion and references section. The introduction gives a
brief introduction of the two main options for businesses, i.e. franchising and owning and
operating new business. The discussion gives a clear and detailed data on the two options,
their advantages and disadvantages in relation to the case study’s business, Raw Kitchen
Fremantle. The conclusion section gives the writer’s personal opinion on the topic and Raw
Kitchen option. The reference section gives a list of sources from which the data was
extracted.
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Table of contents
1. Introduction...............................................................................................................................4
2. The Raw Kitchen Business and Industry.....................................................................................4
3. Expanding The Raw Kitchen to new business locations.............................................................5
3.1 Advantages of Expanding to new business locations........................................................5
3.2 Disadvantages of Expanding to new business locations....................................................5
4. Franchising The Raw Kitchen.....................................................................................................5
4.1 Advantages of Franchising The Raw Kitchen.....................................................................5
4.2 Disadvantages of Franchising The Raw Kitchen................................................................7
5. Business recommendation........................................................................................................7
6. Conclusion.................................................................................................................................7
Reference list.....................................................................................................................................8
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1. Introduction
Franchising is a process whereby an individual (franchisor) grants a trading or business
licence to an individual (franchisee), with an entitlement of the business’s risks and profits
within a certain period of time. However, the franchisee has the obligation of paying the
franchisor a certain specified amount of money for that agreed time period. Owning and
operation a personal business is the process whereby a business person opens a completely
new business on their own. The business is mostly their own idea and innovation project. In
this case, the business owner is responsible for all business operations taking place, all the
decisions to be made are made by them and business funding is their responsibility among
other things. When a person owns and operates their own business, they get the chance to
enjoy all the profits and on the other hand shoulder all the risk management burden.
The aim of this report is to explore the proposed future plan for The Raw Kitchen Fremantle
in relation to the business expansion, growth and development and sets out to critically
compare and contrast the advantages and disadvantages of continuing to operate the
business independently by opening The Raw Kitchen Restaurants in new locations and hiring
additional employees as opposed to starting a franchising system through the use of its
business product line.
Effectively the owners of The Raw Kitchen Restaurant must gain competitive advantage over
its competitors without affecting its current business operations. Therefore, with the Raw
Kitchen Restaurant being listed among the best restaurants in Western Australia, then as
the manager and owner of the restaurant, I have to make the best decision to ensure that
the business is on-going, profitable and productive.
2. The Raw Kitchen Business and Industry
The Raw Kitchen Fremantle is a leading plant based restaurant in Western Australia that is
set up in a 1920’s warehouse that specializes in the provision of health and sustainability,
combining a plant-based restaurant, eco retail store, kombucha microbrewery, yoga school,
venue hire space and ongoing events (The Raw Kitchen, 2017). The business focuses on the
preparation of plant based natural wholefoods without the use of dairy, gluten, refined
sugar or additives which provides for healthy living to its customers. It is a restaurant whose
operations are not only based on food and beverages, but also deserts and other services
like yoga classes and studio services for any willing customers (The Raw Kitchen, 2017). The
business is a fast growing restaurant in the food and beverages industry and has strong
brand recognition in Australia.
In the food and beverages industry, it is somehow difficult for businesses to develop and
grow fast enough because of the increased competition rates in Australia, especially in the
Western region. This is indicated by the increasing number of its own branches in different
locations of the Western region, the opening of pubs and bars for their customers who
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would like other drinks besides smoothies and one stop cafes that offer food and drinks as
well.
The Fremantle region is bursting with a large number of upgrading restaurants that offer
competition to the Raw Kitchen Fremantle. Therefore, the kitchen has to look for better
ways of conducting its operations by gaining a competitive advantage over its competitors.
3. Expanding the Raw Kitchen to new business locations
 By expanding the Raw Kitchen, the business is likely going to realize certain benefits,
e.g.:
 Increasing its market share and segment
 Increasing its sales volumes
 Increasing its profits hence development and growth
 Increase its popularity and famousness status
3.1 Advantages of Expanding to new business locations
 A business will be able to accommodate new personnel with new skills, knowledge,
experience and expertise.
 Increases a business’s customer base and loyalty
 Increases its possibilities of getting favourable and suitable financial opportunities
 Increases the business’s economies of scale on different fields
3.2 Disadvantagesof Expanding to new business locations
 Increases the possibility of losing current customers
 It increases the business’s costs and expenses set for operations, development and
growth
 Increases a business’s strategic complexity
 Increases the possibilities of cash flow problems which may lead to borrowing and
increase in debt
4. Franchising the Raw Kitchen
Franchising the Raw kitchen is one of the options that the business is considering. When the
business is franchised, the business owner will be the franchisor while the employees will be
the franchisees. Franchising Raw Kitchen is actually a very realistic option for a business
owner because it has its own customer share, segment, customer base and loyalty. These
are some of the main issues that can affect new businesses and may take years to achieve.
Therefore, by franchising, the business will be able to maintain its operations and profits or
even grow in the end.
Franchising is one of the best entrepreneurial venture methods of starting a business in the
current business world. Research has shown that it is currently being used in high rates
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more than other methods. Franchise is referred as a way of starting a business by using a
business name or product brand that is already in existence (Kalnins, 2010). However, the
individual that is starting the business (franchisee) must be authorized by the business
owner (franchisor) to use their name or product brand. The franchisee is therefore liable to
pay the franchisor some amounts of money after some duration (premiums) until the
contract or agreed time period is over. In a franchising process, the franchisor is completely
responsible for all the costs, profits and risks that may be related to the business name or
product brand being used. In business, this may the best course of action for a potential
business person with no experience, finances to fund the new business, who is not willing to
take risks etc. Therefore, in the case The Raw Kitchen Fremantle, if I decide to franchise the
business, I am likely going to use the business name and the product brand to start a new
business in another location. This means that I will be accompanies by all the risks and
benefits facing the current Raw Kitchen Restaurant.
4.1 Advantages of Franchising the Raw Kitchen
Experience
Generally, as far as one has a little experience, purchasing an already existing business
becomes an easy process and so does the process of operating it. Assuming that am the
owner of Raw Kitchen Restaurant, then it means that I will have enough experience of the
business operations and industry than a new business person. The experience will help me
run my new business in the only way I know which means more than 50% chances of
success. I will be able to use my skills and knowledge exactly the same way I did use then in
Raw Kitchen.
On the other hand, no experience is needed to run a franchised business. If the franchisee
lacks the required skills, expertise, knowledge and experience to run the business, it is the
duty of the franchisors to offer training sections to ensure that they acquire those skills
(Dant et al, 2011).
Already existing customer base
When an individual franchises a business, they acquire the already existing customer base,
market share and segment of the current business or product brand. This is because, at
most times, nothing about the product or actual business that changes, except the
management team only. Basically, the customer base and loyalty is a process that can take
years for business to build and therefore, when ne acquires it, operating the business
becomes an easy task (Davies et al, 2011). In that case, in case I franchise Raw Kitchen, I will
be able to acquire its Australian customer base which will be advantageous to my new
business.
Profitability becomes easier
When a business person franchises another business, they are capable of realizing profits or
income faster than when they start new business on their own. The reason behind this is
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because the already existing business has grown and developed its customer base, volume
of sales, employees’ service quality and products’ quality among other things that
contribute to business profits. The business has already taken care of all the aspects that
may cause expenses to the new business.
Increase in external support
The franchisee has more support than new businesses started by individuals. Apparently, if
the franchisee wishes to use new employees in their businesses, the franchisor will ensure
that they have received training and ensure that they have all the skills and knowledge they
need to start working. In addition to that, the franchisors management team will ensure
complete corporate support and any other related support to the new team (Verbieren et
al, 2012). This will ensure that the product brand or business name stays the same or is not
interfered with.
Less costly to start
Starting a franchising can be referred to as uplifting an already existing business. This means
that in franchising a business, the cost becomes much less than when starting a completely
new business. A franchise involves using or continuing with an already existing business
which means that the costs of infrastructure, marketing and promotions, technology
installation etc. has already been covered (Larty, 2010). In that case, the large portion of the
money meant to start the business is channelled towards developing and improving the
products, services, business image and brand.
4.2 Disadvantages of Franchising the Raw Kitchen
High management restrictions
In a franchise, the franchisor always wants to get back the business or product brand exactly
as it was or better than it was but not in a worse status than it previously was. Therefore,
thefranchisor comes up with some rules and regulations or restrictions on how the
franchisee should run the business (Lewis, 2009). This restricts the franchisee from
exercising their full effort and knowledge on management and decision making. They are
not able to manage the franchise as they would like because they are being guided by their
laws.
Profit sharing
In most franchises, all the profits are shared between the franchisor and the franchisee
(Dada et al, 2012). In other cases, the franchisee pays a large sum of money to the
franchisor for the first few months which may cost them their profits in the end.
5. Business recommendation
As a business owner of Raw Kitchen, I will franchise the business. This is because, there are
more advantages accrued to franchising rather than starting new businesses in new
locations. Franchising is much easier process. Also, its disadvantages weigh less than those
of starting a new business. The main benefit is that through franchising, one can become a
franchisor as well which means owning the business personally.
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6. Conclusion
From the research, the two main options towards business growth and development are
either to franchise the business or open a completely new business in new locations.
Franchising can be very effective for a business that is popular and famous among its
potential and current users or rather the market. The option of owning and operation a new
business is suitable when an individual has all the factors required for starting up a new
business from scratch. Also, it is suitable for when an individual wants their business to be
their own idea and implementation plan. As for the case study business, Raw Kitchen, the
best option is to franchise. This option will bring more advantage to its operations rather
than the option of opening new businesses in a new location.
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Reference list
http://www.therawkitchen.com.au/the-raw-kitchen
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Should Know
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Webber, R., 2013. An introduction to franchising, Palgrave Macmillan, Hampshire; (ISBN-
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