· Franchise relationship is based on an agreement which lays down terms and conditions of this relationship.
· The term of franchise may be for 5 years or more. The franchise agreement may be renewed with the mutual consent of the parties.
· The franchisee gives an undertaking not to carry any other competing business during the term of the franchise; and the franchiser gives an undertaking not to terminate the franchise agreement before its expiry except under situations which may justify the termination of the franchise agreement.
· The franchisee agrees to pay specified royalty to the franchiser, as per terms of the franchise agreement.
· Franchise means selling the same product and maintaining a similar type of shop decor (i.e. style of interior decoration) for which franchiser provides assistance to franchisee in organising, merchandising and management. The franchiser virtually sets up the business for the franchisee.
· Franchisee is supposed to follow parent company’s policies regarding mode of business operations, as per clauses in the franchise agreement.
· Franchiser may give training to personnel working in the franchisee’s organization.
There are primarily two types of franchising
a. Product/ trade name franchising: In this type, the franchisee exclusively deals with a manufacture’s product. Examples include Kidzee, French Loaf outlets, Bharat Petroleum bunks,Patanjali products, etc. Relationships like Maruti Suzuki with ABT Maruti or Hero Honda bike dealerships may be considered as franchises. However, they but should be considered more as exclusive dealerships with more operational freedom for the dealers.
b. Business format franchising: When a franchisor awards rights covering all business aspects as a complete business package to the franchisee it is called as business format franchising. This package includes training , support and the corporate name. This enables uniformity of products, services, environment across geographical boundaries with a high degree of standardisation. Examples are McDonald’s, Pizza Hut. KFC, Hot breads, Titan, Color plus, Zodiac, Lakmé beauty parlour.