fusion point research Marketing Research Reports

Marketing to Franchising Leaders in Retail

Understanding Their Role

Most large retail organizations in the US (Walmart, Target, CVS, Walgreens, Costco, etc.,) directly own their stores, but a few key retailers have chosen a franchise-based business model. Retail franchises are popular in the convenience store (7-Eleven, Circle K), auto parts (NAPA, CARQUEST), and specialty store (GNC, Batteries Plus Bulbs, Cartridge World) sectors of the industry.1

 

Franchise relationships involve a franchisor, or the company offering the brand name and business model expertise, and a franchisee, the person or business owning and operating the local store(s). The relationship is established with a franchise agreement. This agreement is the legal document clarifying the business terms, roles and responsibilities of both parties.2 Franchisees benefit from the relationship by accessing branding, business knowledge and the refined operating processes of a larger organization. Franchisors benefit because they do not need to tie up capital, or carry the financial risk of opening new stores.

 

Retail franchisors screen potential franchisees using standards such as:

 

  • Minimum Net Worth requirement (examples: GNC $150,000-$200,000; Batteries Plus $350,000)
  • Minimum Liquid asset requirement (examples: GNC $100,000; Batteries Plus $100,000)
  • Credit rating
  • Business experience

 

The main financial aspects of the business arrangement generally include:

 

  • An initial fee paid from the franchisee to the franchisor (examples: GNC $40,000; Batteries Plus $37,500)
  • An initial investment for construction, equipment, materials, inventory, etc. (varies by location, but example ranges are: GNC $150,000-$280,000; Batteries Plus $175,000-$350,000)
  • And a royalty fee, payed from the franchisee to the franchisor (examples: GNC 5% of sales; Batteries Plus 6% of sales) 3 4 5

 

Franchisee stores run independently of the national retailer. They do not “work for” the franchisor; however, the franchisor puts minimum service level requirements into the franchise agreement to ensure a consistent level of quality across all stores, and to protect the overall brand image.

“…our more than 3,000 owners often cite their involvement in the community as one of the greatest benefits of owning a NAPA AUTO PARTS store." 6

1 See, as an example: www.nacsonline.com/Research/Documents/NACSCategory...

2 Kurtulus, Mümin, and L. Beril Toktay. “Category Captainship vs. Retailer Category Management under Limited Retail Shelf Space.” Production & Operations Management 20, no. 1 (2011): 47 – 56. EBSCOhost(57291866).

3 Wang, Steve. “Category Management–Common Language between Retailers And Manufacturers.” Nielsen. 2014. Available at: www.nielsen.com/tw/en/insights/reports/2014/catego...

4 Berman, Barry, and Joel R. Evans. Retail Management: A Strategic Approach 12th Ed. Part 6. Edited by Pearson Education, Inc., Prentice Hall., 2013.

5 Gooner, Richard A, Neil A Morgan, and William D Perreault. “Is Retail Category Management Worth the Effort (and Does a Category Captain Help or Hinder)?.” Journal of Marketing 75, no. 5 (2011): 18 – 33. EBSCOhost(64342080).

6 “Achieving Category Management Mastery.” Real Results Magazine, Volume 8, Issue 2, Available at: http://jda.com/realresultsmagazine

Feedback?

Not Required

Submitting Form...

The server encountered an error.

Message received. Thanks!

Copyright © 2016 Fusion Point Research, Inc.

Some retailers employ a franchise business model, where the stores are owned and operated by separate, independent business owners. This relationship poses unique challenges and opportunities.
fusion point research Marketing Research Reports
Some retailers employ a franchise business model, where the stores are owned and operated by separate, independent business owners. This relationship poses unique challenges and opportunities.
  • Minimum Net Worth requirement (examples: GNC $150,000-$200,000; Batteries Plus $350,000)
  • Minimum Liquid asset requirement (examples: GNC $100,000; Batteries Plus $100,000)
  • Credit rating
  • Business experience
  • An initial fee paid from the franchisee to the franchisor (examples: GNC $40,000; Batteries Plus $37,500)
  • An initial investment for construction, equipment, materials, inventory, etc. (varies by location, but example ranges are: GNC $150,000-$280,000; Batteries Plus $175,000-$350,000)
  • And a royalty fee, payed from the franchisee to the franchisor (examples: GNC 5% of sales; Batteries Plus 6% of sales)