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Franchising Still The Best Investment in Tough Times

Franchise owners are awfully smug these days. While dismayed stockholders watch the red figures crawl on the ticker tape, entrepreneurs behind food kiosks and restaurant chains boast of maintaining control over their investments and even growing their businesses in these tough times.

“We’re looking at opening 20 more stores [next year],” Rommel T. Juan, president of Filipino fast food chain Binalot, said in a telephone interview. “We’re going into dine-in restaurants.”

Franchising is especially apt in this economic turmoil, said Mr. Juan, who is also the president of the Association of Filipino Franchisers, Inc. (AFFI).

In fact, AFFI members expect double-digit growth in their total sales this year, Mr. Juan said.

“Franchising is a strong option because people will have control over their money. The beauty of franchising is you don’t have to learn everything from scratch.”

Alegria S. Limjoco, Philippine Franchise Association (PFA) chairperson and chief executive officer of franchising consultancy Francorp Philippines agreed, saying in a separate telephone interview: “The wise who put their money in franchises, they still have it.”

Food franchises, in particular, will still do well as they cater to a basic need, Ms. Limjoco and Mr. Juan said. “We still eat five to six times a day, no matter what,” Ms. Limjoco said.

“I think it will continue to be strong as people will always eat…This downturn in the economy is nothing new to us. The Philippines is resilient,” Mr. Juan said.

But interested franchisees should look into getting a brand with an exceptional product, as consumers will be even more keen to patronize those that offer the best value for their hard-earned cash, they said.

“I think people will still go back to value,” Mr. Juan said, clarifying that this doesn’t necessarily mean offering the cheapest product, but the best.

“It’s all about the product.”

“Definitely [people will be looking for] value for money. I’m talking about the B classes and below which make up the majority,” Ms. Limjoco said.

One such way is food carts, Armando O. Bartolome president of another consultancy, GMB Franchise Developers, Inc., advised.

“Food carts will shine [next year]. More people are going to eat outside rather than cook at home, especially with contact centers coming up.

“There are many innovative carts…that serve Japanese meals and even healthy food for instance,” Mr. Bartolome said in a telephone interview.

Big restaurants are also viable, but it will be harder to find good locations, Mr. Bartolome added.

An alternative to consider would be strip malls.

“These malls that are just two stories high — people go there because of convenience and because it is very tailored to a type of market,” Mr. Bartolome said.

Franchising outside Metro Manila would be good too.

“The provinces are the place to go because it is booming. I’m really surprised. People are vibrant. More OFWs [overseas Filipino workers] are spending. The malls are always packed,” Mr. Bartolome said.

This is a good idea, especially as Filipinos cut back on traveling abroad and turn to local tourism, said Ms. Limjoco.

But a ready space and hungry customers do not ensure surefire profit for just any type of franchise brand, the experts warned.

Interested franchisees must do their homework.

“It’s a relationship. They have to know the business, know the people [behind the franchise], and talk to 25% of the franchisees,” Mr. Bartolome advised. “And it’s still the old recipe of being hands-on.”

Mr. Juan, for his part, said: “What is important is to look at the brand. Do people trust it? Is it viable? Once it has brand equity, it is easy to sell.”

Investors must also be wary of very low franchise costs.

“Watch out for someone who claims [it will just cost] 25,000 to 60,000. Investigate before investing,” Mr. Bartolome warned, noting that established brands go for P150,000 at the very least.

The return on investment should come within one and a half to two years, Mr. Bartolome added.

Investors may look through franchise brands under PFA and AFFI to weed out scammers as they have been pre-screened before gaining membership into the industry groups , Mr. Juan and Ms. Limjoco advised.

Not interested in food? Service franchises such as tutorial centers, spas and salons are poised to do well too, the experts said.

“For services, there is a high growth potential. I really believe the spa business is going to grow,” Ms. Limjoco said, adding that there is continuing demand for beauty and health services despite economic slowdowns.

Mr. Bartolome is similarly upbeat: “I’m looking at more services franchises [coming up].”

Whatever a budding franchisee chooses it has to be something one enjoys, Mr. Juan said.

“The most important advice I can give is get into something you are passionate about.”

source: Jessica Anne D. Hermosa, www.bworldonline.com

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