There are a number of legal forms available for developing a franchise network.
The term “franchise” tends to be used generically by industry players, making it difficult for prospective franchisees to find their way around.
However, there are real differences from one formula to another, and before committing yourself, it’s important to understand the content of the contracts on offer.
“In terms of the basis of the contractual relationship between the network head and its members, there are two main types of contract. A distinction is made between so-called ‘distribution’ contracts, in which a supply/distribution relationship exists between the network head and its members (franchises and concessions are examples), and so-called ‘intermediary’ contracts, in which an agent works ‘on behalf of’, as in commission-affiliation,” explains Fanny Roy, partner at PIOT-MOUNY & ROY.
The concession
In this case, the network head grants you exclusive territorial rights to distribute the brand. This gives you a virtual monopoly over your area. This type of partnership is very common among brands that manufacture their own products, such as kitchen, window or pool manufacturers (Mondial Piscines, Turbo Fonte, Fenêtres Lorenove, Mobalpa, Cuisinella…). There is no obligation to provide training, support or know-how. This may be part of the package, but is not always the case. To become a dealer, you need to know your sector and your business inside out, as there are few support services.
Brand licensing
This is the lightest version of organized network commerce.
The basis of the contract is the brand owned by the network head, through the provision of the brand’s rallying signs (logo, billboard, etc.).
The owner of a brand (known as the licensor) allows a licensee (you) to use his or her brand, under certain conditions, to launch a business or point of sale.
Brand licensing differs from franchising in that it does not involve the transfer of specific know-how.
“However, the licensing contract may make use of the brand subject to certain obligations: the licensor will ensure that use of the brand is consistent with the network’s image; he may also choose to provide his licensee with assistance services, to ensure that his brand-based concept is correctly implemented”, explains Fanny Roy.
In general, the license covers fewer services and therefore fewer rewards for the licensee, who benefits from greater autonomy, having to rectify the situation on his or her own if necessary.
Networks such as Fitness Park, L’orange bleue, Bagel Corner and Art’Home Services are well known for their brand licensing practices.
The affiliation commission
While, as with franchising, the network head provides assistance and transmits know-how, the commission-affiliation contract differs fundamentally in that the affiliate is neither a retailer nor the owner of his own stock: he sells the articles on behalf of the network head, and receives a commission for doing so.
The network head creates the collections, finances the stores’ inventories and takes them back at the end of the season, paying a commission on sales to its affiliates.
This system reduces the financial risks for aspirants (no cash advance, as the stock does not belong to them), but leaves affiliates little room for manoeuvre in building and managing their collections.
A good idea for experienced candidates, who will feel frustrated if they can’t buy their stock and sell what they want.
In this type of contract, the affiliate must also check the financial soundness of the network, and in particular its cash flow.
It’s important to ensure that the network has the resources to finance the purchase of stock.
Commission-affiliation is widespread in the ready-to-wear and personal goods sectors.
It is used by brands such as Etam, Caroll, La fée Maraboutée, Karl Marc John, Eleven Paris and Finsbury.
Lease management
Reserved for high-investment sectors (catering, food retailing), lease management allows candidates with insufficient financial resources to enter the franchise market “anyway”. The tenant-manager owns the stock, but not the business, which belongs to the lessor, the network head. He pays rent to the lessor, who is often the franchisor.
“However, it’s essential that the contract is clear about the possibility of buying back the business. Otherwise, the tenant-manager may find himself with nothing if the contract is terminated, since the business, and consequently the clientele, do not belong to him!” warns Fanny Roy.
This hybrid formula should therefore be considered as a transitional solution. Please note: in addition to a management lease, a franchise contract is signed between the franchisor and the franchisee, and the two contracts must be combined to work together.
Cooperative and associated trade
Cooperative and associated commerce is also a type of network commerce, but organized and controlled by independent retailers who own the outlets. More widespread than franchising, with 50,200 outlets and sales of 163 billion euros, associated commerce brings together associated retailers. They can be found in all sectors, with banners such as Intersport, Atol, Orpi, Krys, Intermarché and Biocoop….
Members, who are shareholders in the network, pool their resources and develop common policies: purchasing, signage, sales operations, services, etc. They not only own their outlets, but also decide on network policy.
Cooperative brands also have regional managers who visit members on a regular basis.
Here, there are no entry fees, but rather the purchase of shares.
Associated trade is well suited to retailers already in business, who wish to pool their resources (thanks to a central purchasing group) and benefit from the reputation of a recognized brand. On the other hand, it is less suited to employees in the process of retraining, with no experience of the sector, and who need to be trained and well supervised. The FCA (fédération du commerce associé) federates around a hundred chains in the sector.
