Franchise versus Non-Franchise based on Pizza X - Case Study Example

of the businesses evaluated: Franchise: Subway Non-franchise: Pizza X Organizations have a number of ways through which they connect with the international world and become a part of it. This has been made easier through a number of factors including a reduction in trade barriers, faster as well as cheaper communication facilities and rapid changes in consumer tastes and preferences. The whole world has countless opportunities, resources, information and customers to make use of. In order to become involved internationally, an organization has a number of options including exporting, global outsourcing, offshoring, licensing and even direct investing. Licensing is when the licensor (corporation) makes certain resources available to the licensee, which is a company from another country. This enables the licensee to produce and sell a product which is similar to the one being sold by the parent company (Licensor). Franchising is a special form of licensing which occurs when a corporation sells a complete package to the franchisee which includes trademark, equipment, ingredients of the product and even advice related to managerial aspects. The franchisee takes the corporation`s name and standardized operating system (Management, Print). Some great examples of franchises include the fast food chains like McDonald`s, Subway, Burger King etc. on the other hand, a non-franchise business is one in which, although you have lesser support as compared to a franchise, you are free to make your own decisions and follow your own ideas. Unlike a franchise, owners of a non-franchise business do not have to face strict operational rules and other operational guidelines set by the franchisor (Non-franchised business opportunities, Web). One of the well-known franchises of the world is Subway which has been chosen as a franchise business for this assignment. The franchise concept of Subway involves a simple operation as the subs (sandwiches) do not have to be cooked. It also involves low investment and overheads for the franchisee. In order to start a franchise of subway, the franchisee first has to submit a complete application. It takes between 2 to 12 months to start the business at the proposed location. The franchisee is required not to have any association with other businesses during this term of franchise agreement with Subway. In order to purchase a franchise in the United States, the person should be a legal citizen or permanent resident of the United States. The franchisee is helped by the registered development agents of Subway who would help in the initial settlement period. The total investment by the franchisee can range from $115,700 to $260,350 for traditional locations and $85,200 to $202,150 for non-traditional locations. Subway helps the franchisee by providing training for two week which includes in class as well as training in stores. Unless this training is taken, the franchisee will not be allowed to open the shop or outlet. There is a certain criteria set by subway for location, store placement, store design etc. the basic menu of Subway offers breakfast, salads, flat breads and hot as well as cold submarine sandwiches. The franchisees have the option of adding four sandwiches to their menus, one to be selected by the store and two selected by the market. The franchisee has the ability to determine the pricing of store items although prices are also recommended by the company. The franchisee also has to follow a number of guidelines of ingredients and other items. The menu also includes freshly baked cookies and there also a number of requirements of salty snacks, bread etc. The company requires the franchisee to open the store for a minimum of 98 hours. The policy can be changed or eliminated at the franchisor`s discretion. The developing agent would give training of 70 hours during the first week of the store and will evaluate the store on a monthly basis. The company also provides daily back-up support by assigning a coordinator whom the store owner can call for assistance. The company also provides education through newsletters and access to the University of Subway which is its online learning center and which provides operational, marketing as well as advertising information along with other updates. Franchisees are obligated to participate in the every day operations of the store. They are required to supervise the employees and all the operations of the franchise. The company also provides an operations manual containing the guidelines and regulations of operating a Subway restaurant. The non-franchise business chosen for this term paper is Pizza X which was started by Jeff Mease and Barry Lowenthel. Both of these partners used to work at Dominos; Jeff used to deliver pizza and Barry was one of the assistant managers of Dominos. They realized the potential that this business had in the area of Blommington and came up with the idea of opening a new pizza restaurant called Pizza X. As both of them were inexperienced, they presented the business idea to Jeff`s father, Howard Mease who was in the grocery business at that time and agreed to support Jeff`s entrepreneur spirit by providing an initial loan. Although there were some hidden costs and other unexpected expenses, they still managed to run it in a highly competitive environment and were able to make the first profit by the third year. As Lennie, who is a current business partner of Pizza X said, “Through the years we have become much more knowledgeable and can now control the cost much better.” When asked what the biggest problem was that they faced, he said, “money”. He further added that they could not afford experienced managers and employees and therefore, hired students for delivering purposes. After a year of hard work and determination, they opened their first residential store which provided diversification opportunity to them and helped them improve their cash flows. The interviewee though his company to be lucky as it enjoyed a very low turnover rate as compared to other restaurants in the industry. They believe themselves to be the employer of choice through their policy of hiring, keeping and promoting within their business. Pizza X became popular and successful due to the hard work and motivation of the partners, employees and also due to the advice of Howard Mease who acted as a mentor. They also got help from books written by influential people of the industry. The biggest competitors of Pizza X are other fast food chain including Dominos, Papa Johns as well as Pizza Hut. The strategy of Pizza X is to compete by serving the best quality product, charging a low but competitive price and delivering the best service in town. Their strategy also includes being involved in the community by promoting the feelings of oneness in locality. Currently, Pizza X does not have a business plan but they are currently working on developing a vision for their business for the next 10 to 15 years. Once their team reaches on a consensus, they would formulate an action plan for the future. As far as the marketing aspects are concerned, they take a grass roots approach and do not use “traditional methods such as a newspaper or a radio”. They invest their marketing budget in the community as their marketing team supports the teams at IU soccer games and other high school events. They have also invested in a Pizza X van in order to add value to their everyday deals. As for their corporate social responsibility, they hold silent auctions for not for profit organizations of their town. They know that they are not the cheapest restaurant in town but they promise to give a high return on customer`s investment by providing superior value and also by being an active, giving and supporting member of the community (Interview with Lennie, business Partner). There a number of advantages and disadvantages of these two businesses of franchise and non franchise. The advantages of franchising with a renowned and successful business, the chain of Subway in this case includes buying a business idea which has already established its place in the market and has strong brand name recognition. As compared to a non franchise business like that of Pizza X, it creates a better impact as you just have to execute the plan effectively and efficiently by following all the rules and regulations set by the company. If you start your own business, you have to carry a great risk because your idea can even backfire and you could even end up in huge amounts of losses. This process of franchising is also said to be easier than starting a new business from scratch because the corporation provides a training program itself as they have to maintain their brand name in the market and they can not afford to lose their reputation through the mistake of a franchisee. A great disadvantage of franchise is that the one buying the franchise is required to follow all the rules and regulations set by the corporation. Also that the franchisee is required to pay a franchise fee and a monthly royalty fee from their profits (Weighing the pros and cons of franchising vs. traditional business, Web). Another disadvantage is that the franchise might not make enough profits even if it has a strong brand name. The franchise business of Subway could benefit further by improving the location chosen, the quality of food provided, the behavior of employees, the maintenance of outlet and the overall service provided by the franchise. This would help boost up the sales and profits of the franchise. On the other hand, one of the great advantages of a non-franchise business is that the owner gets to make all the decision and make his own rules and regulations. The owner is not answerable to anyone and he bears all the profits as well as the losses. This business type does not bring any ready to use package with it. The owner has to think of his own ideas, those which should be creative enough and be capable of competing with other offerings of the market. The non franchise business of Pizza X can improve further by adopting more advertising as well as sales promotions in order to capture a larger market share. This company could also benefit by providing better deals than its competitors to make as much sales as possible. It should also open more retail outlets and expand the business to cater to a larger market. All forms of business have some advantages as well as disadvantages. Before deciding on whether to open a franchise like Subway or a non franchise business like Pizza X, all individuals should first perform a cost benefit analysis and conduct a market survey to find the needs of consumers. After this, the individual should choose which form of business to select depending on the research done. Once an idea is selected and the investment id made, he cannot reverse the decision or also he would have to face all the losses. If he chooses to open a non-franchise business then he should have a strong idea, one which could compete with the businesses which are already established in the market. On the other hand, if he chooses to open a franchise, then he should be ready to comply with all the rules and regulations set by the corporation. Works Cited: "What Is a Franchise Business?" Small Business Law: Free Legal Information. N.P., n.d. Web. 3 Nov. 2012. . Daft, Richard L., and Pat Lane. "Managerial Planning and Goal Setting." Management. 9th ed. Chicago: Dryden Press, 1991. 160-168. Print. Industry. "Non-Franchised Business Opportunities on Franchising.com." Franchise Opportunities & News - Franchising.com. N.P., n.d. Web. 3 Nov. 2012. . Industry. "Weighing The Pros And Cons Of Franchising vs. Traditional Business." Franchise Opportunities & News - Franchising.com. N.P., n.d. Web. 3 Nov. 2012. . "Is a Franchise or a Non-Franchise Business Better for You?" Home office expert's guide/how to work from home/home office, organizing and design tips/product reviews. N.P., n.d. Web. 3 Nov. 2012. . Read More