Business Franchise in the Philippines

by Ronel Forbes

August 12, 2023

An investor who wants to purchase the right to sell and use the original business name, trademark, concept, procedure, goods, and services is known as a franchisee. A franchise business is a partnership between a franchisor (the original firm) and a franchisee (the investor).

As described by the International Franchise Association, franchising is “a method for expanding a business and distributing goods and services through a licensing relationship.”

A person or business (the franchisor) offers a license to a different person or business (the franchisee) so that they can use the franchisor’s goods and services for business purposes. Additionally, the franchisor offers an operating system, a name, and assistance to the franchisee.

Simply put, when you buy a business franchise from an established brand or corporation, you also buy permission to sell their goods and services.

Because franchises don’t need new business owners to develop a brand and an audience, they are less risky for them to pursue. The more likely it is that your firm will succeed because you get to sell goods from an established and well-known brand.

Another advantage of purchasing a franchise is that, often, the franchisor supplies franchisees with all of the necessary products and equipment as part of the package, making it easier to launch your firm.

Types of Franchise Business in the Philippines

There are primarily two forms of franchising in the Philippines:

Business Format Franchise

This is the most typical sort of franchising, in which the franchisor grants the rights to things like trademarks, trade names, and business processes, as well as the system order, allowing the franchisee to run the firm for a charge.

Nearly all aspects of the business are covered in detailed plans, procedures, and rules provided by the franchisors. Additionally, they offer the initial and ongoing support and training that a franchisee needs to be successful.

As you are well aware, this sort of franchising is offered by some of the greatest brands in the globe, with Jollibee, 7-Eleven, and Starbucks being among the most well-known in the Philippines.

Product Distribution Franchise

This kind of franchising closely resembles the partnership between a distributor and a supplier. Simply simply, the product is provided by the franchisor, and the distributor is then permitted to sell it.

Product distribution and business structure differ significantly in that the former places sole responsibility for the product with the franchisor, whilst the latter includes access to training, support, and business processes in the franchise agreement.

However, because of their absence, the franchisee has more freedom in how to run the firm. Though franchisees can have more independence, it’s crucial to remember that they still have to abide by rules like selling the goods exclusively or semi-exclusively.

Franchisees pay a fee to the trademark holders of the goods they will be selling in exchange for these rights. Larger items like heavy machinery and automobiles frequently employ this type.

Franchise Advantage and Disadvantage

Is franchising the best business model for you? Or might creating a company from scratch and running it independently be better?

Although it has many advantages, a franchise business also has certain hazards. Before deciding whether to pursue franchising, carefully weigh the advantages and disadvantages of doing so.

Franchising Advantages:

1. Established and well-known brand

You get permission to use the franchisor’s trade name, trademark, and corporate logo when you purchase a franchise. This gives you access to the well-known brand’s customer base, making it easier for you to find and attract your initial clients.

2. Tried-and-true business strategy

Numerous marketplaces in the Philippines have tested and validated the efficacy of the business operating systems of franchising brands. All you have to do is adhere to the operating manual’s laid out policies, procedures, and control systems to run the company.

Therefore, if you lack training or expertise in business management, franchising is a good option for you.

3. Great Location

Having the support of a significant company or well-known brand makes it simple to obtain a lease for your franchise business location.

If your intended location is a mall, it will be simple to secure a lease because the well-known franchise brand can bring in more clients.

Since franchisors normally only require a tiny space of at least 4 square meters, location won’t be much of an issue if you’re wanting to open a food cart or kiosk business.

4. Training assistance

An excellent method to understand how a successful firm runs is to start a franchise.

Franchise owners offer training to help franchisees comprehend their business model and learn how to conduct daily business, provide customer service, and employ trade secrets, such as exclusive food franchise recipes.

Franchise packages could also come with hiring and training procedures.

5. Pre-opening support

The pre-opening requirements of their franchisees, such as site design, evaluation, and construction, are assisted by franchisors. Assistance for the grand opening is also included in some franchise packages.

6. Marketing assistance

Strong marketing and advertising initiatives are in place for franchise brands in the Philippines, and their impacts trickle down to its franchisees.

For instance, if you purchase a franchise for a shawarma food cart, the package may come with promotional items like a standee of a well-known celebrity endorser like Daniel Padilla or Piolo Pascual. When you launch a similar company on your own, you won’t receive such a draw for customers.

7. Development and research

You don’t need to worry about devoting time and resources to innovation and product development because the franchisor will handle that. You can only concentrate on the operations.

8. Quicker ROI

You can anticipate a quicker return on investment with a franchised firm than you can with launching your own company.The time it takes to recoup your investment is shortened by having access to an established brand name, client base, operating system, and other kinds of initial support.

Franchising Disadvantages

1. High start-up costs

The main disadvantage of a franchise is the startup cost. The initial investment is typically twice as much (or even higher) than what is needed to start a business from scratch.

The typical startup costs for a franchise business are as follows.

Franchise fee: You must pay this one-time, upfront cost in order to lawfully exploit the franchise brand’s confidential information, including its trade secrets, trademarks, and logos. The higher this cost is charged, the more well-known the brand is.
Fees for royalties: In the Philippines, royalties for franchise enterprises typically vary from 3% to 10% of monthly gross sales. It can lower your net income because it is paid each month. However, not all franchisors impose this cost.
Advertising and marketing costs – These are a modest portion of the monthly gross sales that go toward paying for the franchisor’s marketing assistance.
Supply costs – Although some franchisors include the initial supplies as part of the franchise package, franchisees must continue to purchase the following batches from the franchisor directly or from one of its approved suppliers. You may pay more for this than if you found your own providers.

2. Limited autonomy and flexibility

In terms of creativity and innovation, franchising doesn’t really give anything to franchisees. The guidelines in the operation manual and franchise agreement must be complied with by you.

You must first get the franchisor’s consent before changing anything, including using a more affordable and accessible supplier. You are forced to comply if the business does not concur.

3. Lock-in time

Franchise agreements typically have lengths of two to five years or more. During that time, you’ll be tied to the business, regardless of how well or poorly it’s doing financially.

The franchisor’s assessment of your business partnership and the performance of your franchise business throughout the course of the contract will determine whether or not the agreement is renewed.

4. Business Risk

Franchising is a dangerous business, just like any other form of business. The franchisor’s success will determine how successful you are. If the business collapses, its franchisees’ standing and productivity will also suffer.

Please read: EXEMPLARY TRAITS OF AN EXCELLENT EMPLOYEE

Top Franchise Business Niches in the Philippines

Takeout grills
Bakeries/Pastries
Food Cart & Kiosk Franchise
Convenience Store Franchise
Meat shop
Retail Franchise
Restaurant Franchise
Coffee & Cold Beverage Franchise
Water & Gas Refilling Station Franchise
Beauty & Wellness Franchise

Conclusion

Although operating a business franchise in the Philippines is not easy, your investment will more than likely pay for itself in a year or two. Some franchises even experience a return on their investment (ROI) in as little as six months.

Visit the website of the Philippine Franchise Association for additional information about franchise opportunities in the Philippines.

No matter how inexpensive it is to establish a franchise, you cannot use all of your savings to do so. Consider acquiring a personal loan or a business loan from a bank if you’re looking for a way to finance your fledgling food business because the cost of borrowing will be far lower than loans from other types of lenders.

Avail CGL insurance from MGS General Insurance INC.