What does franchise mean and how does it work?

What does franchise mean and how does it work?
4.26.2021
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What does franchise mean and how does it work?

Majority of chain stores, coffee shops and restaurants are franchised. Their quantity is fast growing as entrepreneur buys the model of successful business with proven concept and recognized brand. The most important - with loyal customers who have trust in company and who bring in stable profit.

There are several types of franchises:

  • Commodity. This is goods sales of certain producer using its trademark. The partner does not invest in production and advertising. Partner is involved only in retail.
  • Services. These are chain restaurants, beauty salons, fitness clubs and tens of other areas of activities. Coffee franchise falls in this type.
  • Production franchise differs from previous ones. Partner buys not only the right to use company’s trademark but also a technology or even equipment for production. Partner assures that he will follow technology in order the products meet respective quality standards of main company.

How does franchise work?

First, let us define terminology. Franchise is an analogue of licence that gives the buyer right to perform certain activities using the name of another company, visual concept and advertising materials. Franchisor (company owner) gives the buyer, franchisee, right to use trademark helping to start business with recognized concept, standards and services of main company. The owner advises the partner in any arising questions.

Many successful companies in Ukraine provide franchise. This is the chain of supermarkets Novus, mini bakery Fornetti, restaurants Mafia or pizzerias Pizza Celentano Ristorante. Even popular McDonald's belongs to them. Chain of AROMA KAVA coffee shops falls in to ten the most successful companies in food services. What is the specifics of this form of cooperation and what does it give to the buyer?

  • Opportunity to start own business fast under the guidance of  recognized brand;
  • Ready-made trademark with the name, concept, visual design and positioning;
  • Branded products: signboard, uniform, dishware, consumables;
  • Successful business model with precise standards of production, off-load, culture of customer service;
  • Important – partner who will help to formalize business, choose equipment and suppliers and will train the staff.

How much does it cost to buy franchise in Ukraine?

This is the main question of interest for entrepreneurs. Actual cost is one-paid lump sum. Every company has different cost. For instance, lump sum for AROMA KAVA franchisee is UAH 75,000.00 (during quarantine UAH 25,000.00). This is a single price for every type of outlets, either small coffee kiosk in a shopping mall or full-fledged coffee shop, 100 m2 in area. Royalty is also a part of the cost – monthly payment of fixed interest income to the chain owner. AROMA KAVA partners pay monthly 2%.  

After conclusion a contract the buyer can start own business. However, for this you need investments. Leasing of premises, repairs, purchase of furniture, equipment and all other stuff needed for work. This is whole lot of money. Nevertheless, in case with buying franchise the buyer knows this amount. If start business yourself without any experience it is easy to overblow the budget with unnecessary equipment, expensive consumables and products. As a result it will be more expensive than to start a franchise business.   

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