Creating a franchise (3/5): Is the concept franchisable?

Een franchise creëren: kan het concept in franchise worden gegeven?

Before committing future entrepreneurs to the adventure of his brand, the franchisor must first study (or rather have studied) the feasibility of his project.

Its concept must be duplicable by an independent, economically efficient and distinctive, even original, to attract customers. Objective: to offer a win-win partnership to future franchisees.

Studying project feasibility: the essential prerequisite

For any company wishing to launch a franchise, a feasibility study is required. On the one hand, to determine whether the concept offers a real economic advantage, and whether it is differentiated, transferable and naturally secret, i.e. not easily accessible to everyone; on the other hand, to consider the strategy for rolling out the concept nationwide, thinking as much about the future organization of the network head as about services to franchisees and budget balances.

“This feasibility study enables prospective franchisors to assess the human and financial investment required to create their network. Our firm then sets out alerts or vigilances to be observed on identified elements, whether the prospective franchisor decides to go ahead… or not”, insists Emmanuelle Vaillant, associate consultant at Franchise Management.

When drawing up the future franchisor’s specifications – legal, development, animation, training, financial, human – defining the future brand’s know-how remains the central issue. “Once we’ve established the concept’s value chain, we’ll build the franchisee’s business plan – even if it’s up to the franchisee to draw up his or her own forecasts – based on the factual elements of the pilot units, to arrive at the franchisor’s business plan, which should enable both commercial partners to earn a living respectively,” continues Emmanuelle Vaillant.

Looking to develop a franchise network doesn’t involve guesswork. “For two reasons. Firstly, the franchising system, developed and refined over the past 70 years by numerous prestigious players, is a powerful economic lever that must be mastered, otherwise the new franchisor runs the risk of causing “damage” for himself and his future partners.

On the other hand, it involves individuals investing their own financial resources in what is often a life project, with a moral obligation not to send would-be entrepreneurs into a corner through unpreparedness, on top of the economic hazards to be faced,” explains Laurent Poisson, head of Cabinet Participe Futur and trainer at the Académie de la Franchise.

Analyze the concept’s commercial, economic and financial performance

To determine whether a franchise network’s development project is realistic, the pilot site(s) is analyzed in terms of its commercial, economic and financial performance.

“Sales must be higher than the sector average, as must margins and certain ratios. For example, if additional sales represent 20% of hairdressing sales, compared with the usual 5%, then the concept is out of the ordinary,” notes Laurent Delafontaine, director and co-founder of Axe Réseaux.

The competitive advantage must be real in relation to known industry data. “For example, a 65% gross margin in pizza is 10 points lower than the industry average. If you add in the royalties payable by the franchisee, profitability will be even lower.

The company’s living wealth is also measured by EBITDA. We also look to see if the franchisor has already done any preparatory work, such as written procedures or a standardized graphic charter.

The strengths and weaknesses of the concept also need to be examined: does the future franchisor already own an insurance company or a store interior designer? “says Jean Louvel, Progressium partner and franchise network creation and structuring expert.

In fact, we need to examine how the product and service offer is implemented, and how a sales outlet is run and organized, in order to assess whether the concept can be duplicated as it stands. “For example, do suppliers cover only the pilot area, or the whole country? Do they deliver an original product, such as a vegan hair dye, exclusively for the concept or for all companies?” raises Laurent Delafontaine.

Between the scarcity of the concept and the need for nationwide coverage

You also need to define what makes the concept distinctive, what its competitive advantage is – in short, why the customer would buy its products and services. Its scarcity thus plays a role in its level of added value. “For example, a meat offering concept – tartare, frayed meat, grilled meats – which was initially not very original, but whose franchisor belongs to the 7th generation of breeders in his family, and masters the entire value-added chain, with a patented preservation method: hibernation. The same goes for a personal care concept: a complete digital solution to help you lose weight, the fruit of a great deal of research, is a rarity.

However, beware of tax incentives for the sector, or any uncontrollable event that could damage the profitability of the concept. Other sectors, such as burger, are now saturated.

Operating the concept should not require too many qualifications, limiting the number of potential candidates. Or an initial investment of around a million euros, with no rapid return on investment within 3 to 5 years.

Finally, whatever the concept, the longer, more precise and more thorough the training, the greater the potential for know-how, and therefore for market distinction. “explains Laurent Delafontaine.

It must be possible to entrust the operation of the concept to an independent operator, without too many technical constraints. “Will it be necessary to hire a world champion pizza maker, or is the know-how easily transferable?” images Jean Louvel.

Lack of security and haste: two common mistakes

Other factual and legal elements are also taken into consideration. In Axe Réseaux’s experience, the brand remains the most problematic strategic element.

The company’s human values and, on a personal level, the real motivations of the potential future franchisor also count. Is the decision to develop a network based on opportunity… or on a desire to pass on know-how and support entrepreneurs in their life projects?

“Some are reluctant to pass on their know-how, as this means their concept will be somewhat distorted. Others fear that passing on their know-how will increase the risk of copying it outside the network. This is true in absolute terms, but it won’t be the case if the secret recipes are kept in a “black box”, to which franchisees won’t have access: computer system code, purchasing negotiations with suppliers, and so on. “says Emmanuelle Vaillant.

Certain mistakes are regularly made by young franchisors. “On the one hand, by not securing the concept and its know-how, thinking that they can develop on their own. On the other hand, by wanting to develop rapidly, without taking the time to finalize the concept, model its know-how and implement the management processes. You must never think that a franchise agreement is enough to build a network, nor underestimate the human and financial resources required to make your concept attractive and visible”, adds Emmanuelle Vaillant.

“Young franchisors often need to be tempered, and made aware of the importance for both parties of their commitment to their first franchisees. It’s impossible to go far without taking care of all the details involved in passing on the concept”, explains Laurent Poisson.

Some examples of franchise launches

La Fabrique Cookies: a single-product concept

It’s up to each future franchisor to come up with an original idea. For example, focus solely on cookies, as in the case of Fabrique Cookies, which is starting to expand its franchise network.

“Our concept, which has been in existence since 2012, is to sell only takeaway cookies, fresh from the oven, still melting, and no other merchandise such as muffins or bagels. We also offer related products such as boxes, giant cookies, do-it-yourself jars to bake them yourself, and soon, an ice cream with our cookies.

As a lifelong gourmand, it took me six months to perfect my cookie recipe – because I was sick of eating the same ones over and over again! – and master the product, before entering a market that has been growing ever since its inception.

I first sold my cookies over the Internet, delivering them myself, before opening my first store in Paris at the age of 28. This period enabled me to make enough mistakes to learn how to sell this product, right down to choosing a location for a store”, says Alexis de Galembert, founder and director of La Fabrique Cookies.

Louis Herboristerie: initially a pure player site

“Our concept is a herbalist’s shop, offering herbal products on a B-to-C basis. Originally, we were just a pure player site. Our expert advice was provided by telephone or e-mail. In 2020, we opened our first physical boutique in Charleville-Mézières. The lease was signed two days before the first Covid containment…

The impetus to develop a franchise came from the numerous requests from future franchisees to replicate the concept in their own town. A profitability study convinced us to take the plunge. The store was reorganized over a two-year period. As we come from the Web, the important information has already been written, which makes it easier for us to write the operational manual.

Our aim today is to bring the herbalist’s trade up to date, for example through the choice of furniture, a loyalty card or a newsletter for customers, while respecting traditional codes, such as a large counter or the presence of plants. Our aim is to maintain the quality of advice in our herbalist shops, through initial and ongoing training,” says Louis Gobron, founder and director of the Louis Herboristerie network.

DreamAway: a market cousin to the film industry

New technologies have naturally given rise to new concepts, all the more so since to concentrate on customer relations… it’s better to have the guarantee of being able to find solutions to technical problems in a hurry… in front of the customer!

“Our concept allows us to bring Virtual Reality to as many people as possible, and to offer collaborative adventures to friendly, family or corporate teams, giving them a moment out of time. It offers a sense of immersion experienced by the customer, directly correlated to the floor space available – several dozen square meters – and to the social dimension – i.e. the simultaneous configuration of several headsets.

The franchising model, which we were unaware of at the launch of our first virtual reality space, proved to be the best way to build a large-scale network, rapidly covering the territory and establishing our brand by sharing its history with local entrepreneurs. All the more so as virtual reality technology is set to spread to businesses and individuals alike.

Our franchisees need to have a pioneering spirit to exploit a technology with infinite uses and applications, knowing how to master it and share it with the public, in a market that’s in the process of being built, but is evolving rapidly,” explains Arthur de Choulot, CEO and founder of DreamAway.

Franchisor: knowing how to simplify the franchisee’s work

Last but not least, the franchise system also enables us to position ourselves to meet new needs.

“After testing 3 pilot units in 2018, we launched the Préservation du Patrimoine Energie network four years later. Thanks to the quality of our partnerships, we are able to offer our franchisees a major benefit: the removal of barriers to entry into the renewable energies business, particularly in terms of ten-year insurance cover, qualifications and accreditation with financial backers. This concept is all the more relevant as our country has been in an energy emergency since the beginning of the year, and demand is very high.

Our job as franchisors is to simplify the franchisee’s work, by providing tools to professionalize the approach to the customer, and by simplifying the administrative, technical and commercial aspects of the business. For example, we have created a service for franchisees dedicated to managing financial aid.

On the other hand, it’s essential to offer innovative tools that a freelancer couldn’t have on his own. In our concept, everything is digitized, from prospect reception to site invoicing, right through to profitability indicators. We have also developed digital configurators capable of sizing our customers’ installations precisely and economically.

Last but not least, the franchisor’s team must be sized to match the number of franchisees. The structure dedicated to monitoring and coordinating our 3 networks employs 80 people, and is constantly growing,” concludes Sébastien Vernay, Associate General Manager of the Préservation du Patrimoine Energie network.

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