What is franchising

Those who want to start a new business often rely on a franchise.

The franchise is a type of business collaboration, which involves a commercial contract that allows an entrepreneur to start a business by producing and distributing the services of an already established brand.

The franchise market accounts for as much as 50% of commercial activities in the USA, 45% in Canada, and in Europe, France holds 10%.

In Italy, whose retail network is still based on small realities, the first form of franchising is attributed to Gamma d.i. in Fiorenzuola d'Adda in 1970.

Characteristics of franchising

How does franchising work?

There are two main parties in the franchising contract:

• the franchisor, which is the already established and famous company
• The franchisee or affiliate, which is the business that starts operations through the franchisor

What are franchise stores and royalties

The franchisor grants the affiliate the right to market its products under the brand of the established company. Furthermore, the franchisor provides the franchisee with training, methodologies, and support from the parent company. However, the affiliate must also adhere to the quality standards and business management practices of the brand.

The franchise agreement includes a royalty, which is a payment of a percentage of turnover from the affiliate to the franchisor.

In addition, there is usually an initial set commission, called a fee.

In fact, both parties of the contract will share the brand, business method, and communication, marketing, and distribution system.

Types of Franchising

There are mainly three types of franchising:

• The industrial franchise: this usually includes franchises from restaurant chains, clothing and furniture stores
• The distribution franchise: these are the franchises of large retail organizations (big supermarkets) and branded stores such as Oviesse, Upim, and they account for 50-60% of the brands in Italy
• The service franchise: examples include travel agency franchises and all those private activities related to services including healthcare as well as credit mediation companies and internet services.