What is sub-franchising?

Sub-franchising is the term used to describe the relationship between a master franchisee and the unit franchisee in those systems that are the overseas operations of a franchisor that has decided to expand internationally. In practice, it is the same relationship as that between a unit franchisee and the franchisor in the latter’s home market.  When a franchisor ‘goes international’the most common way of doing so is to appoint a master franchisee in each of the foreign markets in which it is intended to grow the system. The master franchisee acquires the rights to develop and franchise the system in that market - effectively becoming the franchisor. He should first open and operate some of his own pilot outlets to prove that the system works in the new market and make whatever adaptations to the system prove to be necessary, after which he can then appoint franchisees to operate further outlets in the normal way.  The franchise agreement for a sub-franchisee is normally with the master, who will in turn have a master franchise agreement with the franchisor. Fees are paid by the sub-franchisee to the master franchisee, which then remits a percentage of those fees back to the franchisor.