Why do franchisors run company-owned outlets as well as franchise their business?

Author: Vicky Wilkes

answered by Vicky Wilkes

Senior Associate at Squire Patton Boggs (UK) LLP

Franchisors usually test their business concept is capable of being replicated by a third party and is a proven business before launching it to franchisees. This is often referred to as a pilot scheme and the unit as the pilot unit. Running a company owned outlet, which is usually operated independently from the company, should therefore allow the franchisor to test the business model. It is worth noting that the British Franchise Association’s code of ethics requires that a franchisor operates the business concept with success, for a reasonable time and in at least one pilot unit before launching its franchise network. After the initial proof of concept phase, one of the main reasons for the franchisor maintaining a company-owned outlet is to test any new ideas and/or processes and learn from any mistakes before launching any changes to its franchise network. It is better to keep any initial teething problems at a local level, rather than experience them on a national or international level.

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