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Franchising: Food is Out, Services are In

THE LEADING lights of the local franchising industry are all predicting a bright future for this way of doing business, once written off as the “tamad” [lazy] route to entrepreneurship.

Consider this little piece of statistic: According to the Philippine Franchise Association (PFA), the number of franchised businesses has grown in the past few years from a mere five percent of all retail shops in the country to an estimated 15 percent.

That means that three in every 20 stores or establishments you will encounter along the typical street is a franchise business, compared with one in 20 a few years ago.

This ratio will be even higher inside a shopping mall in this mall-crazy country, where as much as two-thirds of all tenants are franchisees.

One would think that this threefold growth in recent years would have already brought franchising to its plateau.

Not so, says the widely-acknowledged “father of Philippine franchising.”

Speaking to the media in a press conference earlier this week, PFA chairman emeritus Samie Lim encouraged aspiring businessmen to considering the franchise trade.

“The opportunities are there, and they are big,” he said. “When people ask me, ‘Is it too late to get into franchising?’ the answer is no, because we still have a lot of room for growth.”

Lim feels that the local business scene has the potential to mimic the US retail industry where franchise businesses make up about 40 percent of all retail establishments in the consumer sector — a staggering two out of every five stores on the street.

Why is the Filipino business psyche attuned to it franchising, standing out among even the traditionally more entrepreneurial minds in the region like the Chinese or the Indians?

The franchising business involves the “selling” or “renting out” of a business’ concept and brand to a third-party that will operate the retail outlet according to guidelines set by the original owners.

The franchisees’ risks are reduced by riding on an established brand or product, while the franchisors’ revenues are multiplied through the royalties paid to them.

In actual practice, the size spectrum of franchise businesses varies greatly from large restaurants and fast food chains like McDonald’s and Jollibee to small carts situated in shopping malls or street corners.

The PFA — the umbrella organization of the country’s franchisors and franchisees — says this is evidence of the potential of the business model, whether the businessman holds a franchise from a food chain, a fashion establishment, or a service business like a spa or a dry cleaning and laundry business.

“The challenge for the PFA is how to help its members keep up with global and local challenges amid growing intense competition,” said PFA chairperson Alegria Bing S. Limjoco.

PFA is now urging prospective entrants into the franchising scene to consider sectors other than the food business — the traditional bread and butter of franchisers before the concept became hip.

“This area is already saturated,” Lim said. “It has become mature.”

He said the next hot business to be in — as far as franchisors and franchisees are concerned — is the service industry, especially businesses which leverage Filipinos’ well-known warmth and hospitality.

Lim is particularly excited about the spa and health maintenance business, which is now a $25-billion global industry.

“This is big business, and Filipinos can even use their strengths in ‘hilot’ [traditional therapeutic massage] in the franchising business,” he said.

Lim also noted that opportunities exist for small and successful franchises to bring their success to a higher level.

“The key word that we’re stressing is ‘nationwide,'” he said, urging businesses to think big. “You have to be able to grow nationwide. If you can bridge that, there’s no reason why you can’t go international.”

All these developments however have attracted parties with less-than-noble intentions.

Of late, the franchising industry has seen the proliferation of businesses offering “free franchises” to would-be investors willing to part with at least P10,000 as their “reservation fee.”

Lim says that aspiring entrepreneurs should be wary of these “get-rich-quick” schemes (he refused to call them “scams” just yet).

In several cases, Lim said the PFA has received reports of investors losing their hard-earned reservation fees because the franchisor decides against awarding the “free franchise” invariably for its own reasons stipulated in fine print and forfeiting the investor’s money.

“We have received a lot of complaints from people recently about these activities,” he said.

The PFA chairman emeritus lamented that many victims of this scheme are those who can ill afford to fight a long drawn out legal battle, mainly because their only disposable resources are those which they already invested, and lost, in the “business proposition.”

“They can’t even afford a lawyer,” he said, adding, “There are some people getting rich from a lot of P10,000 investments.”

To help interested franchisees, Lim said they encourage them to seek the advice of PFA professionals.

– By Daxim Lucas – Inquirer 07/16/2006