A franchise is a business in which the company develops a product or service (the franchisor) and then enters into a contractual relationship with other entities(franchisees).
There are a few models of franchise, generally in the early phase the company tends to run on a COCO(Company Owned Company Operated) model until it gets a firm footing in the market.
This blog focuses on two other popular models, the FOFO franchise model, FOFO stands for Franchisee Owned Franchisee Operated wherein the company licenses its brand to the franchisee for an agreed time and consideration and how it is different from the FOCO franchise model.
Franchisor’s role:While the franchisor doesn't directly manage the franchise unit, they typically provide various forms of support, such as training and operational manuals and quality control measures.Hence, The FOFO model is widely used, particularly in sectors like fast food restaurants and gyms.
FOCO model is the more popular model as it provides the franchisee with lower operational burden as the franchisor is responsible for tasks such as managing inventory and supplies and doing the Marketing and advertising of the franchise.
Let’s dive deeper into the different responsibilities of both the franchisee and the franchisor.
The franchisee owns the individual franchise unit, including the initial investment and all ongoing operational costs like rent, staff salaries, and inventory also bearing the full financial risk.The Franchisor on the other hand has to Provides the franchisee with the brand name, logo, and established business mode and generally receives a royalty fee from the franchisee, typically based on a percentage of their sales.
Compared to traditional franchise models where the franchisor dictates most aspects, FOFO allows franchisees more control over their day-to-day operations.Franchisees have the freedom to hire, train, and manage their staff, allowing them to build their own team and establish their work culture.
Owning the individual franchise unit means they have the authority to make key decisions about their business within the framework set by the franchisor's agreement.
FOFO franchisees also benefit from the franchisor's established business model, operational manuals, and training programs. This can streamline processes and potentially lead to greater operational efficiency compared to starting a business from scratch.
Also Read: Best Profitable Franchise In India
The FOFO model can have a complex relationship with market expansion for example due to ownership franchisee might be highly motivated to grow their business however not all franchisees possess the necessary skills and experience for rapid expansion.
One great advantage is that FOFO franchisees are embedded in the local community and possess deep understanding of their specific market. This allows them to tailor their marketing and product offerings to better resonate with local customers.
The FOFO (Franchise Owned, Franchise Operated) model offers franchisees a higher degree of operational independence compared to traditional franchise models
Franchisees have the freedom to make key decisions about their business within the framework set by the franchisor's agreement. This can include:
By leveraging the franchisor's established brand name and reputation, FOFO franchisees can reduce their marketing expenses. Existing customer loyalty towards the brand translates into repeat business for the FOFO franchisee. This provides a stable foundation for revenue generation.Further, Loyal customers tend to spend more with the brand over time, leading to an increased customer lifetime value for the FOFO franchisee.
Franchisors typically offer extensive training programs, often held at their headquarters or designated locations covering brand history and values as well as providing comprehensive product or service knowledge.
By leveraging brands such as Kouzina's expertise in operating the restaurants, franchisees can also benefit from a potentially lower risk of failure and ongoing support in areas like staff training, inventory management, and marketing.
Compared to some franchise models, FOFO often requires a larger initial investment to cover the franchise fee, equipment, inventory, and other startup costs. This can be a significant barrier to entry for many potential franchisees.
The success of FOFO franchisees is also indirectly linked to the overall success of the franchisor. If the franchisor's brand image or market position deteriorates, it can negatively impact individual franchise units making it more likely to fail compared to other models
The absence of direct management support from the franchisor can place a heavy burden on the franchisee to handle all aspects of the business.The success of the FOFO model relies heavily on the skills and experience of the franchisee while including having a business acumen and strong management expertise.
This is a key aspect of the fofo franchise model and distinguishes it from other franchise models where the franchisor might take on some of these responsibilities
This model requires strong financial management skills from the franchisee.They need to be able to budget effectively and manage their cash flow to cover their ongoing expenses and investments.
The Franchise Agreement serves as a binding contract that outlines the rights, responsibilities, and obligations of both parties.
The agreement sets the foundation for a successful and long-term partnership by clearly outlining expectations and ensuring both parties are on the same page.
Financial considerations: Specifies the franchise fee, royalties, and other fees payable by the franchisee to the franchisor.
It protects the interests of both the franchisor and the franchisee by clearly defining the terms of the relationship.
The agreement also outlines the standards and guidelines that the franchisee must adhere to in operating their business. This helps maintain consistency across the entire franchise network and protects the brand's reputation.It also specifies the conditions under which either party can terminate the agreement.
It's crucial for both the franchisor and the franchisee to:
The franchisee needs to thoroughly understand the franchisor's brand messaging, target audience, and established marketing strategies. This ensures consistency with the overall brand image while allowing for local adaptations.
Based on the brand guidelines and local market insights, the franchisee needs to develop a customized marketing plan that identifies the target audience and chooses the appropriate marketing channels.
Franchisors can help by providing support through training and guidance on effective marketing strategies and tactics aligned with the brand image.
For adapting your fofo franchise model to the local market demands you can start by:
Conducting thorough market research: Analyze demographic data, consumer preferences, local trends, and competitor landscape to understand the specific needs and expectations of your local market.
For Customer Engagement you need to train your staff to deliver friendly, helpful, and personalized service that exceeds customer expectations. Engage with your local audience on social media platforms by sharing relevant content, responding to comments and messages promptly, and running local promotions or contests.
Tip: Be prepared to adjust your strategies based on changing market conditions and customer feedback.
With increased dependence on data analytics and digital tools we believe that the marketing landscape will evolve exponentially for the fofo franchise model.
While FOFO franchisees will continue to have more autonomy and responsibility compared to other models, collaboration with franchisors and leveraging technology will be crucial for their success in the evolving business landscape.
FOFO franchisees can also grow by catering to the growing population that believes in sustainable practices by partnering with local suppliers, offering eco-friendly options, and highlighting their commitment to social responsibility.
Customers are increasingly demanding personalized and seamless experiences. FOFO franchisees might need to invest in technology and training to enhance customer service, offer convenient online ordering and delivery options, and build stronger customer relationships.
Franchisees might leverage data analytics tools to gain deeper insights into local market trends, customer behavior, and campaign effectiveness. This can help them personalize their marketing efforts and optimize their local strategies.
Kouzina is already ahead of the curve with its key features such as data driven location survey to help in finding the right location for your next franchisee outlet!
The number of factors come into play while deciding the right model for your business.These include individual circumstances, risk tolerance, and desired level of involvement in the business.
FOFO: Requires strong business management skills, financial acumen, marketing expertise, and operational knowledge
FOCO: Less demanding in terms of experience. May be suitable for individuals who want to be involved in the business but lack extensive experience or prefer a more hands-off approach.
We have a framework to help you with your assessment:
In regards to your business goals,think short term and long term.
What do you want to achieve in the next 1-2 years? This could be increasing sales or expanding your customer base
What is your vision for the business in the next 5-10 years? Do you want to build a successful local business, become a regional player, or eventually sell the franchise unit for a profit.
Questions such as how much time are you willing to dedicate to running the business help too. FOFO requires a significant time commitment, while FOCO may offer a more hands-off approach.
FOFO: Carries higher risk due to ownership and financial responsibility, but also offers the potential for higher rewards through direct profit sharing.
FOCO: Offers lower risk as the company bears much of the financial burden, but comes with potentially lower rewards due to profit sharing agreements.
Both FOCO and FOFO models can be effective strategies for franchise expansion. By carefully evaluating their specific needs, resources, and goals, franchisors can choose the model that best positions them for long-term success and sustainable growth.
Discover which model suits your expectations and get started today with Kouzina Food Tech Private Limited.
