OPINION ARTICLE BY MYANMAR TIMES

Local interest in franchising has grown on the back of the rising number of international retail brands entering Myanmar. While the business can be rewarding and lucrative, it is important to have a complete understanding of the franchise concept and what you’re signing up for. 

Franchising is a business agreement under which a company that already has a successful product or service (the franchisor) enters into a continuing contractual relationship with another company (franchisee) to operate under the franchisors’ trade name.  

For the franchisee, it’s important to be aware of the fees involved in franchising. Under a franchise agreement, the franchisee typically pays an up-front setup, or franchise fee, which is an estimated percentage of monthly revenue. There are also royalty fees, marketing fees and occasionally a training fee involved.

In return, the franchisor provides the business model, permits the use of its brand and also provides operational support.  However, the franchisee assumes the full financial and operational responsibility for running the business, while possibly having to buy specific ingredients from the franchisor. Under some agreements, the franchisee is also expected to meet operational standards set by the franchisor.

In other words, in addition to a buying the right to use a well-known brand name, franchising is a method of starting a business which minimises risk by using a tested business formula developed by the franchisor. 

Hence, if you are planning to develop your own business but want to minimise start-up mistakes that new entrepreneurs typically make when hitting the ground running, buying into a franchise system may be the option to consider. 

However, purchasing a franchise model doesn’t guarantee that your business will be a success. It is still important that you take time to select the right one. Here are six tips to be aware of when choosing a franchise:

Align your business and personal interest

Narrow your choices down to the industries you are most interested in. Then ask yourself which brand would keep you excited and motivated for the next three to five years. Although food and beverage is most common, there are also franchises available in education and retail brands. 

Also, consider how much time you can invest and if you would be proud to be associated with the business. After you narrow down the brands, you can then contact these companies for more information.

Choose the right type of franchise  

The most common type of franchise in Myanmar is the Master Franchisee, where the company has exclusive rights to operate a pre-determined number of outlets within Myanmar. The upfront franchise fee for such models is easily above US$50,000 (K74.5 million). 

A less risky option is to sub-franchise a single outlet from a brand which is already in Myanmar. Besides being more affordable, the franchisee rests assured that the brand, quality or taste of the product or service is already accepted by the local market. In addition, the franchise system would already have been localised, ensuring a quicker setup and lower cost of goods sold.

One example of a single unit franchise in Myanmar is Hejohejo. The full setup for a HejoHejo kiosk, including kiosk construction, equipment, kitchenware, franchisee fee, training support and upfront marketing support costs US$9,500. Hence, the only additional capital required is rental and working cashflow. This allows the franchisee to setup a business in a short time.

Go for high standards

Find a franchisor who is proud of their products and services and who values their brand and reputation. This may seem obvious, but some companies are only interested in selling the franchise and less in maintaining the quality of the service rendered or products offered.  

This is because inconsistent standards can affect the overall standing of the franchise system and ultimately impact your business. So, check on their operational processes as well as customer services and support offered.

Brand flexibility is important

If you are undertaking an F&B franchise, make sure you understand the flexibility you have with the menu. This is because some franchisors will not allow any additional food or beverage items on the menu other than those they initiated. Hence, if you enjoy developing new products or experimenting with new recipes, find a franchisor who allows you to add to your menu. 

Evaluate the brand’s growth strategy

Carefully consider if and how the franchisor will assist you in marketing and what their growth plan is. Ideally, their corporate marketing plan should include your outlet. If so, check that this is included in the marketing allocations provided for in the agreement. 

Similarly, check on their plan for upcoming new items, especially seasonal items or limited offers. This is important for expanding business segments and also provides you with insight on the brand’s long term plan.

Obtain financial projections

Last but not least, always ask for sales and costs projections from the franchisor and, if possible, get the earnings forecasts, as this will demonstrate whether or not your investment yields an attractive return.

Chua Tianhao is the Myanmar Master Franchisee of Hejohejo, a dessert and drink outlet chain with four outlets in Myanmar. He is also the Country Representative of Astreem, a Singapore-based regional franchising consultant firm.