Types of Franchise Business Models

Franchising is a form of business model where the owner of a business (known as franchisor) grants an individual or group of individuals (known as franchisee) the permission to operate under the brand, trademark & the business model owned by the franchisor.

Different Types of Franchise Models

There are 4 types of franchise models:

1. Company Owned Company Operated (COCO)
2. Company Owned Franchise Operated (COFO)
3. Franchise Owned Company Operated (FOCO)
4. Franchise Owned Franchise Operated (FOFO)

Franchise structure differs across these various franchise models.

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Company Owned Company Operated (COCO) - COCO is a model where the franchise store unit is owned by the brand and is run by the brand. It has nothing to do with franchising in the least. As a result, the franchise is funded entirely by the company. Employees of the brand run the franchise. Example: Reliance Jio Mart, Bigbazar.

Company Owned Franchise Operated (COFO) - This is where the company invests in the franchise business and the franchisee runs it according to the company's guidelines. This is unusual and uncommon in the market because most businesses that invest in expanding their operations choose to do so by themselves. Example: call centers that handle calls on behalf of a company.

Franchise Owned Company Operated (FOCO) - The franchisee is the one that owns the property and is responsible for all additional capital expenditures. The store/outlet operations are managed by the franchising company. It is also known as Franchise Invested Company Operated. Example: Bistro57.

Franchise Owned Franchise Operated (FOFO) - The company gives the franchise investor its brand name in this FOFO model. They do so in exchange for a non-refundable (franchise fee) and a pre-determined period. The brands decide on the prices and items for the outlet. As a result, the franchise investor is the store's owner, and the franchise must bear all operational costs. Also, the Franchise is required to pay the Brand a percentage of income (royalty). This model is the most used in the marketplace.

Advantages and Disadvantages of Franchise Model

The various structures and models of franchise business in India have their advantages and disadvantages. Let us discuss the benefits and cons of each franchise model:

COCO Model:

Advantages of COCO model:

• The entire profit goes to the company because there is no channel partner to share it.
• It allows the company to expand in locations where franchisees are hard to come by.
• Helps a company in showcasing its outlet and product range.

Disadvantages of COCO model:

A corporation spends time and money on activities that are not its core business, such as owning and managing a store.

COFO Model:

Advantages of COFO model:

• No operational expenses to bear.
• High productivity and efficiency because the outlets are managed by an entrepreneur.
• A company can open its outlet in the areas where it is not finding the franchisees.

Disadvantages of COFO model:

• A franchisee is in charge of the customer experience. If it isn't appropriate, the company's name will be harmed.
• If a franchisee leaves, the company may be at a loss regarding what to do next.

FOCO model:

Advantages of FOCO model:

• Better customer handling as the customer experience is in the hands of company.
• Company does not pay for set-up expenses, franchisee does not pay for operational expenses.

Disadvantages of FOCO model:

• Not suited for those planning to rent property to become a franchisee.
• Due to the franchisee's lack of involvement in day-to-day operations.

FOFO Model:

Advantages of FOFO model:

• A variety of franchise opportunities to choose from.
• Excellent return on investment on a successful franchisee.

Disadvantages of FOFO model:

• Higher failure rate compared to other franchise business models.
• This franchise concept is seen by some franchisors as a quick way to success. As a result of the hefty franchise fees and other investments, the return on investment time may be undesirable.

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Hybrid Franchise Model

In the world of franchise business models, hybrid franchising is relatively new. It is a hybrid franchise platform that combines physical and digital franchises. Traditional enterprises are digitally turned into a multi-functional hybrid franchise platform.

In brief, hybrid franchising involves digitizing a traditional brick-and-mortar franchise and combining it with other business concepts. Several teams and business models collaborate to assist franchisees in growing their businesses.

A hybrid business model combines elements of single proprietorship with those of a larger corporation. It enables a business owner to expand their own company while working within the concept and structure of a larger corporation. Individuals buy the rights to utilize their brand name, systems, logo, and model from franchise owners, allowing them to start their enterprises.

In a more modern sense, a hybrid business refers to a company's efforts to advertise its main products in a variety of contexts. This business model can include running a brick and mortar store while also keeping an internet store and employing catalogue sales to generate orders via the mail. Typically, the hybrid company will have its warehouses to manage orders received through the mail and those received through the internet site. This brick and mortar back end operation may be outsourced to order fulfillment providers in some situations as a strategy to reduce overall operating costs.

 (FAQs) about different types of franchise business models:

1. What is a Single-Unit Franchise?

   • A single-unit franchise involves a franchisee operating one location of a franchised business. It's the simplest form of franchise arrangement, where the franchisee typically has exclusive rights to operate within a specific territory.

2. What is a Multi-Unit Franchise?

   • In a multi-unit franchise, a single franchisee operates multiple units or locations of the same franchise brand within a designated area. This model allows for more significant economies of scale and broader market penetration.

3. What is a Master Franchise?

   • A master franchisee essentially serves as a sub-franchisor. They buy the rights to develop and sell franchises within a specific territory. They then recruit, train, and support individual franchisees within that territory.

4. What is a Area Development Franchise?

   • Area development franchising involves an agreement where a franchisee is granted the right to open multiple units within a defined geographic area over a specified period. This model often requires the franchisee to meet certain development milestones.

5. What is a Conversion Franchise?

   • Conversion franchising involves converting an existing independent business into a franchised outlet of a well-established brand. This model allows existing businesses to benefit from established branding, systems, and support.

6. What is a Co-Branding Franchise?

   • Co-branding franchises involve combining two or more brands under one roof. For example, a fast-food restaurant might offer products from another brand, such as a popular coffee chain, within its premises.

7. What is a Product Distribution Franchise?

   • In a product distribution franchise, the franchisee sells the franchisor's products without necessarily operating a traditional storefront. This could involve distributing goods to retailers, businesses, or directly to consumers.

8. What is a Business Format Franchise?

   • Business format franchising is the most common type, where the franchisee not only uses the franchisor's trademark and products but also adopts its entire business model, including operational processes and standards.

9. What is a Joint Venture Franchise?

   • Joint venture franchising involves a partnership between the franchisor and the franchisee, where both parties contribute resources and share profits and risks associated with operating the franchise.

10. What is a Master License Franchise?

    • Master license franchising is similar to master franchising but typically involves international expansion. A master licensee purchases the rights to develop and sell franchises within a specific country or region on behalf of the franchisor.