Why consider investing in a Master Franchise?

Master Franchising isn’t for everyone but for some, it can be a very rewarding experience both financially, and in terms of job satisfaction.

For those readers who are unfamiliar with the term Master Franchise, for the purposes of this article, I am defining it as acquiring the rights to own and operate a proven franchise model in a geographic region or country; the Master Franchisee acquires the know-how to not only be able to deliver the service/product at a local level, but also that required to build a network of sub-franchisees in effect replicating all aspects of what the franchisor has accomplished in their domestic market.

Whilst there can be many reasons that someone may wish to go down this route, let me cite 3 that in my experience are very common:

Financial Rewards
The initial investment required to acquire a Master Franchise for the UK, will typically run into hundreds of thousands of pounds. However, the potential returns are very attractive. Once a Master has established a network of franchisees, they will enjoy several income streams: franchise fees from new franchisees joining the network; ongoing royalties/management service fees (MSF) from existing franchisees; possibly income from one or more corporately owned and operated franchises; possibly margin on the supply of products/additional services. The larger the network becomes, the more resilient the ongoing MSF income, and the more predictable the EBITDA. So, a successful Master Franchisee can enjoy a very healthy income during their ownership of a country licence, and at the same time, build a an attractive asset which can be sold at some point. I can think of several Master Franchisees who have built and sold their UK rights in the last year or so interestingly, on ore than one occasion, the buyer has been the franchisor!

Helping Others Succeed
One of the major differences between being a franchisee, and a Master Franchisee, is that the customer focus is different. A franchisee’s customer will be the person/organisation buying the service/product being sold by the franchisee whoever the franchisee received money from; the latter principle remains true for a Master Franchisee, but of course in this case, income is received from franchisees, normally a percentage of their income. So the focus of the Master should be their sub-franchisees after all, the more successful they become, the more successful the Master. Therefore a good Master will see their customer as the franchisee, and will ensure that the initial and ongoing training and support provided enables franchisees to achieve their business and personal goals. Its very much about motivating and equipping which can be hugely rewarding when franchisees respond positively, and make a success of their businesses.

Flexibility within a Structured framework
Most franchise concepts which are new to the UK will require some local market adaptation this can be due to legal requirements, cultural norms, or consumer preferences. However, there will be certain aspects of the franchise which will not change – these include the brand, the corporate culture and values, the core offer, and the target market(s). One of the first jobs of the Master Franchisee, is to launch a corporate franchise to test the model in the UK, to make adaptations as required (in conjunction with the franchisor), and to ensure that the unit economics work. Examples of this include Food & Beverage brands adapting some of their menu items to reflect local tastes; and premise-based concepts adapting the outlet footprint to reflect the (typically) higher real estate costs in the UK compared to certain other markets (eg the USA). So there is much more scope as a Master, to make changes to different aspects of the business model apart from contractual obligations to ensure that the franchisor is agreeable to such changes, there is a very practical reason for involving them it may be that what is proposed has already been tried elsewhere in the world, and has failed! As a unit franchisee, there will be relatively little scope for localisation after all, one of the benefits of taking a franchise, is that customers have expectations of what they will receive in terms of product/service, and if there is inconsistency across the country, the brand can become devalued. So for the more entrepreneurially-minded franchisee, a Master provides scope to input into country adaptation, whilst retaining all of the benefits of using a proven business model.

Interested in finding out what Master Franchise could work for you? Contact me at iain.martin@thefranchisingcentre.uk