Benefits to the franchisor include regular royalty payments, expansion with reduced financial risk, and a greater geographical presence.
In the case of Coca Cola, for example, Coca Cola sells the syrup concentrate to a bottling company, who mixes these ingredients with water and bottles the product, and sells it on. The major soft drink companies also sell the supplies to the regional manufacturing franchises. For example, soft drink bottlers often obtain franchise rights from soft drink companies to produce, bottle, and distribute soft drinks. This type of franchise is common among food and beverage companies. Through manufacturing franchises, a franchiser grants a manufacturer the right to produce and sell goods using its name and trademark. Tire stores, for example, operate under this kind of franchise agreement. To obtain these rights, store owners must pay fees or buy a minimum amount of products. Through this kind of agreement, manufacturers allow retailers to distribute their products and to use their names and trademarks. With product franchises, manufactures control how retail stores distribute their products. McDonalds: McDonalds is perhaps the most famous franchise in the world. Prominent examples include McDonalds, Burger King, and Pizza Hut. Fast food restaurants are good examples of this type of franchise. In most cases, the franchisee also buys supplies from the franchiser. In return, the business owners pay fees and royalties. The franchiser company generally assists the independent owners considerably in launching and running their businesses. In business format franchises (which are the most common type), a company expands by supplying independent business owners with an established business, including its name and trademark. On this basis, there are three different types of franchise: While there are many ways to differentiate between different types of franchises (size, geographic location, etc), we will be looking at how different franchisors allow franchisees to use their name.
franchise: The authorization granted by a company to sell or distribute its goods or services in a certain area.
A manufacturing franchise is a franchising agreement where the franchisor allows a manufacturer to produce and sell products using its name and trademark.
A product franchise is a franchising agreement where manufacturers allow retailers to distribute products and use names and trademarks.
A business format franchise is a franchising arrangement where the franchisor provides the franchisee with an established business, including name and trademark, for the franchisee to run independently.