When a franchise network opts for international expansion. When a franchise network opts for international expansion, it can choose to do so through a master franchise. What is a master franchise? How does it work? What are the advantages and disadvantages? Explanations.
Master franchising is a contract under which a French brand delegates its development abroad to a person or another company in a given territory. This is usually a foreign country, but it can also be a group of countries or a region.
How does a master franchise work?
As a Master Franchisee, the partner is given the opportunity to develop the concept as a franchise or branch in its own territory. He then adapts it to local specificities in terms of culture, commercial issues and legislation. Ideally, one or more pilot units are opened to test the adaptability, profitability and viability of the model.
The master franchisee signs a classic but fairly long franchise contract, generally between 10 and 20 years. If he in turn chooses to develop the concept via franchising, he becomes the center of a tripartite relationship between franchisor, master franchisee and local franchisees. He is thus both a franchisee vis-à-vis the brand, and a franchisor vis-à-vis the network he will develop.
To join the network, the master franchisee must pay a high entry fee, often in the hundreds of thousands of euros. Thereafter, he must pay royalties to the original retailer.
The advantages of master franchising
Master franchising offers advantages for both the initial franchisor and the master franchisee.
For the former, this represents a substantial saving in time and money. Firstly, because he entrusts the adaptation of his model to someone who is supposed to know the new location and its particularities inside out.
Secondly, it frees them, at least in part, from the constraints of recruiting, training and supporting local franchisees. In fact, it’s the franchisor who has to draw up a development plan and recruit franchisees. It thus takes on the role of foreign franchisor. However, the franchisor in the country of origin must be on hand if any questions or problems arise.
For the master franchisee, the main advantage is to be able to rely on an innovative concept that has already proved its worth elsewhere. It is ahead of the competition. The fact that the concept is already internationally recognized and eagerly awaited by consumers makes it all the more attractive.
Questions to ask yourself
There are many questions to ask before launching a master franchise. Are the initial franchisor and his concept ready for internationalization? Will consumers in the new country welcome the brand? Is the network head capable of letting go and handing over the reins to someone else? Will it accept losing a little visibility and control over its development?
This last question leads to the question of choosing a master franchisee, who must be trustworthy. The search for such a profile can be tedious, given the investment, experience, knowledge and address book required to carry out the mission.
Drawing up the contract
And last but not least, the drafting of the master franchise agreement. It is not to be taken lightly and must take into account many data:
- The obligation to open pilot units, and if so, how many? How long will the test phase last? What are the consequences of failure?
- How to adapt the concept, such as translating the operating manual into different media, or adjusting institutional and promotional communications to the new location.
- Procedures for development, franchisee recruitment, training, know-how transfer and sales outlet management.
- In the event of a dispute, what is the nationality of the competent court? What happens to local franchisees if the master franchisee defaults? What happens if the initial franchisor fails?
Of course, this list of questions is not exhaustive, and as with any franchise contract, it’s important to be well advised and accompanied to anticipate everything. But it’s worth it!
