Recent Trends and Practical Solutions for Licensing and Franchising

Franchising, in its various forms, continues to present businesses with an excellent way of achieving profitable and successful international growth without the need for either substantial capital investment or a broad managerial infrastructure. In sectors as diverse as F&B, retail, hospitality, education, healthcare and financial services it continues to be a popular catalyst for international commerce and makes a strong and effective contribution to world trade.

Looking at trends in various sectors:

  • Hotels: On a global basis, most hotel operators have a balance between franchised and managed hotels, with, as rough average, two-thirds franchised and one-third managed (though this varies by operator). However is a growing trend towards favouring franchising in hotels. In Asia Pacific, the vast majority of hotels are operated under management agreements rather than franchise agreements because of concerns about the quality of would-be franchisees and the need to protect brand standards. There are signs, however, that this is changing. IHG has been trialling what it calls a “Franchise Plus” model for its Holiday Inn Express brand in China, which extends a franchise offering to third parties, whilst retaining some of the control elements of a management agreement. IHG has now announced plans to extend the model to its Crowne Plaza and Holiday Inn and Holiday Inn Resort brands.
  • Retail: Issues around “Omni channel” continue to dominate as traditional retailers struggle with how to roll out E-Commerce and M-Commerce across their international franchise network. Most retail franchisors have granted E-Commerce rights to their country franchisees as E-Commerce and traditional “Bricks and Mortar” businesses become more connected. Some franchisors have developed their own platforms that they require franchisees to use. Franchisors will also need to consider approving on-line stores on marketplaces and social media sites such “TMall” “WeChat” in China. Master franchise agreements and development agreements need to accommodate multi-channel approvals and certification with E-Commerce being less of an add-on and more of an integral part of the franchisee’s expansion in a country.
  • Wellness and healthcare: Wellness is a $3.72 trillion global industry. There is a huge upsurge in interest in healthy living. The Wellness sector includes gyms, fitness and spas, healthy eating, nutrition and weight loss, beauty and anti-aging, health prevention and complementary medicine. There are a large amount of gym and fitness franchises emerging in different parts of the world and spreading internationally and also licenses and franchises for luxury spas. In the healthcare sector personal home care franchises from North America are spreading to other parts of the world but care should be taken in adapting to local conditions and ensuring that where necessary the franchisor has “boots on the ground” in the local market.
  • Food & Beverage: Trends in food and beverage include the growth of healthy options such as vegan and smoothie concepts and customization of food to customers’ requirements. There is an increasing use of technology in F&B such as ordering on-line, mobile apps and on demand products and services and franchisors need to consider how to introduce these to the franchise network and to update their franchise documentation and manual accordingly.

Services: There is a growing trend for multi-brand franchising in the services sector whereby the franchisor group acquires complementary service brands. For example Franchise Brands is an international multi-brand franchisor that owns ChipsAway, Ovenclean, Barking Mad, and Metro Rod and has expanded through the acquisition of complementary service franchise companies. Acquiring a franchise brand can have its challenges in integrating the new brand into the existing culture and practices whilst keeping all franchisees across the brands happy.

General trends include:

  • Social Media: Franchisors are still negotiating how to benefit from franchisees engaging in social media whilst ensuring that they stay on message and do not damage the reputation of the brand. Every franchisor should have a social media policy and appropriate protections in its franchise agreements.
  • Multi-Unit and Multi-Brand Franchisees: There has been a growth in franchisees who own multiple units of the same franchise brand and multiple brands across the same or different sectors. A franchisee may have a pizza, coffee shop and chicken franchise or own multiple brands across different service sectors. It is essential to ensure that these multi-unit/multi-brand franchisees have the right management structure in place and maintain brand standards and do not grow too fast to quickly to be able to cope.

Franchisors are still using the traditional franchise structures in international franchising such as master franchises and development agreements but regional master franchise and development agreements are also being granted even in smaller countries to spread the risk of the a local partner not performing. Increasingly there is the use of hybrid structures such as subordinated equity arrangements where the franchisor takes a share in the franchisee and “Manchising” where a franchisee with little operational experience can be assisted by a management team put in place by the franchisor.

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Legal Director, Bird & Bird LLP