The Master VS The Area Developer
Franchise terminology is often confusing, wide-ranging and superfluous. Master franchising, the collective term for buying the rights to license out a business with a view to opening up many more locations in a respective area, does not fit this category. Here, Gareth Samuel takes you through the advantages of looking at a Master Franchise, compared to an Area Developer franchise, and what they both really entail.
Once any ambitious franchise reaches that point in time when it begins to look overseas to further its success, generally, two expansion options present themselves. Area Development franchising is similar in many ways to multi-unit franchising, except an Area Developer typically owns a much larger area with more units. An Area Developer will sign an agreement detailing a predetermined number of franchised outlets that can be opened within a specified timeframe. Once the agreement is signed, this individual or organisation has time to begin planning and opening the stated locations across the area. Capital must come from the Area Developer for each location opened, along with external financing from banks or investors.
Master franchising, is, in many ways, a more structured and comprehensive approach for franchisors that are excellent delegators. It involves the recruitment of a Master Franchisee for a country or area. This individual or organisation is then able to act as the franchisor for that region, recruiting franchise owners in territories in much the same way a franchisor would in its native country.
The brilliance of a Master Franchise operation is that it allows for the rapid and mass expansion of a business globally, with less initial capital, risk because the recruitment of a Master Franchisee means that the area is sold with money coming into the business. But, as with every seemingly ubiquitous business pathway, there are inevitable drawbacks.
For the franchisor, less capital reaches them after the Master Franchisee has taken their cut of the Management Service Fees and initial investment fees. Master Franchisees must see individual franchise owners as their long-term customers. Individual franchise owners rely on the Master for support and training and, in turn, the Master relies on the success of the individual franchise owners to take an income – they enjoy a mutually beneficial relationship.
For the franchisor, it is vital that they provide help and support to each Master Franchisee, and through this chain, global expansion of which McDonald’s is a prime example, is enabled.
From the point of view of an individual franchise owner, it makes little difference whether you invest with a Master Franchisee or a native franchisor. It is worth remembering, however that when dealing with a Master Franchisee, there is another link in the chain that could be weak. The best Master in the world cannot make a terrible business model work and, conversely, a world class franchisor with a bulletproof business model will likely fail if the wrong Master Franchise Owner is chosen. Therefore, for individual franchise more research is needed into both the franchisor and the Master Franchisee independently and as a unit. One issue that should set alarm bells ringing immediately is when is seems there is one person purporting to do two jobs, a Master Franchisee and a franchisor are clearly defined and separate roles, if they are both being filled by one person, then it is likely the franchise is poorly run.
Remember that franchising will only be a success for you if you truly believe in the career path that you are choosing – if you, as an investor, decide that there is an issue at any level of the chain, it is best to walk away and find another opportunities.
Should I become a Master? No doubt you will have seen promotions advertising Master Franchise opportunities for various franchises (see page 88 for the International Franchise Showcase), but whether or not to take one on is a decision worth careful deliberation. All things considered, Master Franchising can be extremely lucrative when completed successfully, but there are a lot of aspects that all have to be implemented flawlessly in order to obtain the real money. In order to invest in a Master Franchise opportunity, it is important to have sufficient investment capital, which is often far more than buying into a single unit franchise. After the capital, you must have a genuine belief that the business you are buying into has serious appeal in the country or region you are investing in. Personally, a great Master Franchisee combines excellent sales skills, so as to attract a whole network of franchise owners quickly, with a great deal of patience and organisation to facilitate the provision of excellent support to your network. If you have all of the above, it is quite possible that investing in a Master Franchise opportunity is one of the best career moves you will ever make. On a daily basis, the Master Franchisee assumes the role of a business consultant for their network of franchise owners. This is one of the most satisfying parts of the job traditionally and it enables Master Franchisees to see first hand how their investment is developing. Should I become an Area Developer? Typically, like a Master Franchise opportunity, Area Developer franchises require a high initial investment level. Typically, an Area Developer will sign an agreement stating a predetermined number of units to be opened up in a certain territory and in a specified time frame. Area Developers are very knowledgeable about franchising and usually have a wealth of experience in launching, operating and maintaining a franchise. Because an Area Developer will open many stores in a relatively short period of time, excellent organisational and management skills are a prerequisite. An Area Developer will begin financing, selecting and recruiting from the moment the area development agreement is signed and the fee is paid. If any of these skills are beyond your capabilities, then Area Development is not a path you should take right now. Area Development is an appealing investment option for many serious investors with high personal wealth, or organisations looking to differentiate their market offering. Again, this method of expansion is lucrative for both the franchisor and the Area Developer, provided the candidate is competent.