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Types of Franchise Business Models

LegalKart Editor
LegalKart Editor 04 min read 31727 Views
Last Updated: Oct 27, 2023
Franchise Business Model Types in India

The business model of franchising has been increasingly popular since it enables business owners to run their own companies while utilising an already established brand and operational framework. In the business concept known as franchising, a fee is paid to the franchisor by the franchisee in exchange for the right to utilise the franchisor's business model, brand, and support system. The potential to launch a business with a successful track record, access to training and assistance from the franchisor, and the utilisation of a well-known brand are just some of the advantages that come with investing in a franchise. However, franchising is not without its drawbacks, the most notable of which being the initial financial outlay that is necessary, the recurring royalties and fees, and the limitations placed on the franchisee's ability to run the firm. In this piece, we will go into the world of franchising and talk about the benefits as well as the drawbacks of using this business strategy.

Here are the various franchise models in Indiain 2023

Different Types of Franchise Models in 2023

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 model types.

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  1. 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. 

  2. 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.

  3. 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.

  4. 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. FOFO model example: Bikanervala, Tupperware

 

Advantages and Disadvantages of Different Franchise Models

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:

1. 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.

 

2. 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.

 

3. 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.

4. 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

Hybrid franchising is a relatively recent concept in the realm of business structures that involve franchises. It is a platform for hybrid franchises, which means that it integrates both traditional and online franchises. The transformation of traditional businesses into a multi-functional hybrid franchise platform is enabled by digital technology. In a nutshell, hybrid franchising refers to the process of digitising a conventional brick-and-mortar franchise and integrating it with other types of business models. The expansion of franchisees' businesses is facilitated through the collaborative efforts of multiple teams and business models. A hybrid business model is one that blends aspects of traditional one-person businesses with those of larger corporations. It makes it possible for a business owner to expand their own company while still operating inside the framework of a larger corporation's philosophy and structure. Franchise owners sell the rights to use their brand name, systems, and logos to individuals who want to create their own businesses. These individuals buy these rights from the franchise owners.

A hybrid business, in its more contemporary sense, refers to the efforts that a corporation makes to advertise its primary products in a range of other situations. The operation of a physical retail location, the maintenance of an online storefront, and the use of catalogue sales to generate orders through the mail are all potential components of this type of business strategy. In most cases, the hybrid company will have its own warehouses in order to manage orders received via mail as well as those received via their website. This brick and mortar back end business may, in certain circumstances, be outsourced to order fulfilment providers as a method for reducing total operating expenses.

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