Research paper on the pros and cons of opening a business franchise
Research Paper on the Pros and Cons of Opening a Business Franchise
Table of contents
Pros of Franchising………………………………………………Page 4
Cons of Franchising………………………………………………Page 4
Action Plans……………………………………………………Page 5-6
Franchising has become the new business trend in the United States especially for businesspeople who want to expand their operations. It is much cheaper to join a franchise than to start a new business from scratch. For join a franchise, you only need to pay the franchise fee; you don’t need to do anything after it. They will have their workers come to your city and to remodel the store you want to use as their chain corporation. McDonald's is a fast-food chain corporation in the United States and one of the largest in the World. The company has created a fantastic brand that many Americans have come to associate with.
McDonalds Corporation has been a dominant force in the U.S market for decades, and its franchise expanding to over 100 countries around the world. McDonald's Menu is friendly, and the company has a huge customer base because customers get value for their money. McDonald’s operates as a food chain, providing high-quality prices and market protection for businessmen. It also offers modern diversified foods, such as Chicken Nuggets, French fries, Chicken Maharaja, and Iced tea among other does of diversified fast foods that cater to all customer needs. The brand that McDonald's has created many years has helped many franchisees buyers thrive in a short period of time. McDonald's estimated brand value is worth $97.7 billion forming a 10.8% market share as at 2016. Between 2014 and 2016, McDonald recorded a job growth +14.9% for chefs and head cooks, +5.2% for bartenders (Fuller, 2017). However, it has recorded a 10.8% growth in overall global expansion for the franchise food chains. McDonald's offers relatively low prices in terms of buying franchises and massive market support regarding research and expansion details to ensure that the clients get the best business set up to meet a high demand for the products. Moreover, McDonald's operations are well tested, and that is why McDonald's has managed to dominate a fair section of the food-sector market (Lombardo, 2015). A recent survey has shown that although the high competition from rival franchise lines, McDonald's is still making massive profits through the brand and provide of quality and customer friendly prices.
The business starting process will focus on the following goals and objectives; First of all, it will look into accomplishing the aspect of purchasing McDonald's brand and franchise in its operations. Based on the market survey conducted, New York will form the best business location for the business because of the friendly business taxation laws and huge market base for fast foods. The use McDonald's brand will help the company cover a huge market base. The second objective is to join the franchise with least costs and maximum benefits in the operation of its franchise lines.
The third objective will be to cover a significant market base that is unexploited in New York and ensure the stability of the business. Fourthly, a thorough analysis of the financial and legal requirements for the business when purchasing McDonald Franchise will be made to ensure that the business complies with all requirements (Rodrigues, Nikhil & Jacob, 2016). Understanding of legal requirements for franchise operation is important because it will help the business avoid legal suits that can be avoided. The final objective is to make a thorough analysis of MacDonald's to ensure that it is the best company to form a franchise business relations as well as understanding the pros and cons of the franchise business (Webber, 2013).
Pros of Franchising
Some of the advantages that Franchising will acquire your business include a huge market research benefits. The company does market research for its Franchise partners, and in this case, the best location for setting up the Franchise in New York will be at the expense of the company. Secondly, the initial capital of a franchise is small compared to setting up a new fast-food company. Thirdly, the brand created by the company over the last seven decades, and it will help the business in expanding quickly and customers associating with it well. Moreover, you will be able to enjoy the technology provided by the franchising company for free since you are one of their members.
In this franchise, you will be able to get better marketing tips, training, and market research benefits that will help you understand the way franchise are run and the secrets that the franchising company retain its customers and acquire more from the global. The other benefit is that McDonald's will allow the business to receive lower inventory prices compared to other retailers who do not franchise with the company due to the higher bargaining power that the franchise groups acquire (Webber, 2013). Joining the Franchise will also lead to advertisement revenue which will enable more customers to associate with the business and lead to having more profits; thus, the risk of starting own business can be mitigated.
Cons of Franchising
The start-up costs for franchising can be high since buying the brand name will require high financial capability. The other disadvantage is that you will need to pay royalty payments on an annual basis to the Franchise Company in order to cover the cost of advertising and operational research had done by the franchising company (Beere, R. (2017). There will be little, or no flexibility in the type of products to be sold because McDonald's will expect you to sell their fast foods and other products that they established and branded. Over-rely on the franchise to provide market may lead to business collapse (Webber, 2013).
The first step will be to meet and fulfill all the legal conditions that set up a Franchise or any other business in New York requires. In this case, New York offers a stable business environment and location of the MacDonald’s Franchise, which it will be a great plan (Lombardo, 2015). The State offers friendly tax benefits for the starting of a business to reduce the burden on businesses. The population in the city is huge, and most people live and work in the center of the city forming a perfect market platform to sell McDonald's food. (Fuller, 2017). The implementation of the business plan will be easy since most people can relate to the Franchiser.
According to the Franchising laws, disclosure document in New York, the Franchisor must provide details about key employees, management experience, bankruptcy and litigation history, other investments and purchases before fourteen days are over. A contract will have to be signed between the franchisor and the franchisee about the terms of sales being entered into (Rodrigues, Nikhil & Jacob, 2016). Other legal factors include New York's business requirements that products being sold must meet health standards, and the business must be legitimate. In this case, MacDonalds will be responsible for the New York government's legal requirements and the setting up of the franchise.
On the other hand, a comprehensive business budget for purchasing the franchise, setting up the stock, annual royalties and estimated profits will determine the viability of purchasing the franchise based on the estimated profits. The other plan is to determine the current market share that McDonald's is enjoying, and the ability to increase the annual sales for the business franchise since it uses projected financial analysis from McDonald's.
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Fig. 1.1 Comparison of McDonald’s Market share (Pomranz, 2017).
McDonald’s main competitors include Subway, Starbucks Coffee, Burger King, Wendy’s, Taco Bell and Dunkin’s Donuts among others which may not be listed above. McDonald's leads competitors regarding market share marking a 94.32B market cap. This is because McDonald has the lowest price-to-earnings ratio leading to more customer base preferring it's quality and affordable products (Webber, 2013). The huge brand name has also contributed positively to McDonald's success.
Considering that the pros of starting a franchise surpass the disadvantages, joining McDonald's franchise will be a viable business plan. It will reduce the risk of starting a personal business and meeting a large number of legal requirements. McDonald's is a famous company with renowned brands of fast foods which will make the starting of the business at New York much more successful. New York has a large market range, and there is much potential for a business with McDonald’s brand to thrive. The business will be able to enjoy free low advertisement costs, using the franchisor’s brand, and free market research since it only needs to purchase the franchise.
Pomranz M. (June 30, 2017) The top 25 restaurant chains in America by sales. Retrieved from https://www.si.com/eats/2017/06/30/top-25-restaurant-chains-america-sales
Beere, R. (2017). The Role of Franchising on Industry Evolution: Assessing the Emergence of Franchising and its Impact on Structural Change. Retrieved from http://www.springer.com/us/book/9783319490632
Fuller, S. (2017, July 26). The Advantages of Mcdonald's Franchise. Retrieved from https://careertrend.com/list-6800794-advantages-mcdonald-s-franchise.html
Rodrigues, J., Nikhil, S., & Jacob, S. (2016). Promotional Strategies of McDonalds and Market Effects. Journal of Management Research and Analysis, 3(1), 53. doi:10.5958/2394-2770.2016.00007.7
Webber, A. R. (2013). Legal and Financial Matters. An Introduction to Franchising, 159-188. doi:10.1007/978-1-137-29610-8_9
Lombardo, C. (2015, July 31). Disadvantages and Advantages of Owning a Franchise | Samsung Galaxy Blog. Retrieved from https://thenextgalaxy.com/disadvantages-and-advantages-of-owning-a-franchise/
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