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Franchising through Area Developers

One of the options to franchising your business directly to International Franchisees is to appoint Area Developers in your chosen market.

This process involves granting franchised rights to individuals or companies who will be committed to opening an agreed number of outlets, in an agreed geographical area, to an agreed timescale. The Area Developer will directly own all the outlets and will pay both initial and ongoing franchise fees direct to the franchisor. The Area Developer has no rights to sub-franchise the system to other franchisees.

The franchisor may decide that the whole country should be divided into, say, ten development areas. This will require them to find ten suitably qualified and financially capable candidates. One of the advantages of this is that the financial requirements are lower for each of the individuals which might allow a more rapid expansion of the network. The profile of this person or company will be substantially different from that of an individual franchisee taking a single, directly-franchised outlet.

Many of the advantages and disadvantages previously outlined relating to direct franchising also apply in this scenario:

  • The Area Developer is responsible for funding the development of the network and for meeting the growth targets outlined in the Area Developer Agreement
  • The Area Developer is responsible for recruiting and managing the staff who will operate the outlets
  • The Area Developer will be highly motivated to make a success of their investment
  • The Franchisor has no responsibilities regarding staff management and recruitment
  • Once all Area Developers are recruited the network should grow rapidly
  • The franchisor will receive both initial and ongoing fees

One of the additional benefits of this structure is that the franchisor has only a limited number of ‘franchisees’ to deal with in comparison to the number involved in direct franchising. This means that there is less need to establish a large management and support structure.

This structure will, however, possibly make it more difficult to recruit suitable candidates in as much as the financial requirements and business management skills will be far greater than required in direct franchising.

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