Demarest Brazil: Franchise And Distribution: Which Is The Right Model For Your Business Under The Brazilian Law

Except for Law No. 6729/79, which regulates the commercial concession between producers and distributors of land automotive vehicles, before 2002 there were not in Brazil specific legal rules for distributorship agreements, and they were regulated by their own terms and conditions and by the general principles of contractual law.
However, in 2002, a new Brazilian Civil Code (Law 10406/2002) was enacted, containing specific provisions related to distributorship agreements. According to the new Brazilian Civil Code, the distributor is a person who "assumes, in a non-occasional basis and without subordination, the obligation to promote, on behalf of another person and upon remuneration, certain transactions, within a given area, whereas the things to be traded must be available to such person".
On the other hand, the franchise in Brazil is ruled by a specific law, that is, the Brazilian Franchise Law (Law 8955/94), which establishes that such activity includes any system in which a franchisor licenses to a franchisee the right to use a trademark or a patent, along with the right to distribute products or services on an exclusive or semi-exclusive basis, possibly including the right to use technology or operating system for the business establishment and management, in exchange for a compensation.
Many companies have been experiencing difficulties in deciding which of such models will really meet their demands, considering the complexity of both structures and the rights and obligations involved. Also, some peculiarities that must be noted while negotiating the proper agreement, as described below.

I. FRANCHISE AGREEMENTS

Under a franchise agreement, franchisee is subordinated to franchisor's business model. In other words, franchisee must develop its activities with strict observance of the general guidelines and specific determinations of the franchisor. Nevertheless, the mentioned subordination is inherent in franchises and is not confused with employment or work subordination.
Such subordination, in general lines, consists in the franchisor's right to supervise and control the franchisee's activities to verify if all the specific demands and determinations of franchisor are being fully fulfilled. In consideration of all support, supervision and training provided by franchisor to franchisee, as well as the right to use franchisor's trademark or patent, franchise agreements usually provide for (i) a franchise fee, which is a fixed amount paid in the beginning of the negotiation; (ii) royalties fees, usually calculated according to franchisee's net sales revenue; (iii) publicity fees, also calculated based on franchisee's sales revenue; and (iv) other fees to be calculated as provided in the agreement to be entered into between the parties.
A particularity provided for in the Brazilian Franchise Law is the franchisor's obligation to provide franchisee with the document named "Franchise Circular Offer" at least ten (10) days prior to the execution of the franchise agreement or the payment of any amounts due by franchisee. Brazilian Franchise Law expressly defines the information which must be necessarily supplied in the Franchise Circular Offer, such as (i) balance sheets and financial statements of the franchisor for the two (2) preceding years; (ii) detailed description of the franchise, general description of the business and the activities that will be performed by the franchisee; (iii) estimated initial investments necessary for the acquisition, implementation and operation of the franchise, estimated affiliation fee or franchise fee, as well as estimated cost of the facilities, equipment and initial inventory and respective payment conditions; and (iv) status before the Brazilian Patent and Trademark Office ("BPTO") of trademarks and patents which franchisor will authorize franchisee to use.
Franchisor's failure to comply with such condition may cause the agreement annulment by franchisee and franchisor will be required to refund franchisee the royalties and affiliation amounts that may have been paid, plus losses and damages.
Finally, the BPTO will register the franchise agreement, for purposes of remittance of royalties, as the case may be, and for the payments associated with the agreement to be deducted by the franchisee for income tax purposes. According to Law 9279/96 (Brazilian Industrial Property Law), registration of such franchise agreements with the BPTO is also necessary for third parties to be legally bound.

II. DISTRIBUTORSHIP AGREEMENTS

On the other hand, under the distribution model, distributor generally obtains limited rights to use proprietary information, technology or trademarks of the supplier, considering that subordination and/or control over distributor's activities may be characterized by the Brazilian courts as an employment relationship. Moreover, in this model, distributor pays only for the products effectively purchased, and, consequently, no variable fee or compensation is due.
While negotiating a distributorship agreement, it should be noted that, according to the new Brazilian Civil Code, except where agreed by the parties, supplier cannot designate more than one distributor to operate at the same time in a same zone, with identical assignments, nor can the distributor assume the responsibility of doing any business of the same kind therein on behalf of other suppliers. In this regard, the new Brazilian Civil Code establishes that, except where agreed by the parties, distributor will be entitled to be paid a compensation corresponding to the transactions completed within its zone, even if without its participation.
In other words, it is presumed that the distributor's activities and zone are exclusive, differently from franchise agreements. However, a distributor is not prevented from representing several principals, nor is the principal prevented from appointing another distributor to operate in a zone previously designated, provided that the non-exclusivity is expressly provided for in the agreement.
Another particularity regarding distributorship agreements is established in the Brazilian Competition Law (Law 12529/11). According to such law, to impose, in the sales of goods or services, on distributors and retailers, resale prices, discounts, payment conditions, minimum or maximum quantities, profit margin or any other trading conditions related to their or any third parties' business is a violation of the economic order. In other words, under the Brazilian legislation, distributors are free to determine the prices for which they will sell the products to their clients and/or consumers. The Brazilian Competition Law however does not place restrictions on franchise agreements, and in such model it is usual for franchisors to determine the fees to be charged for franchisee's services or products.

III. CONCLUSION

Considering the foregoing, when deciding which model should be implemented, it should be taken into consideration:
(i) If supplier will exert full control over the other party's activities, including possibility of determination of prices and charging royalties and other variable fees, the franchise structure should be adopted. In this model, the main particularities that should be noted are: (i.1) the franchisor's obligation to provide franchisee with the "Franchise Circular Offer", on penalty of annulment of the agreement and franchisor being required to refund franchisee the royalties and affiliation amounts that have been paid, plus losses and damages; and (i.2) the registration of the agreement with the BPTO, for purposes of royalties remittance, taxes deductibility and effects on third parties; and
(ii) If supplier will not provide assistance, such as provision of business plans, materials and/or trainings, the distributorship agreement may be an adequate structure. In relation to such agreement, the particularities that should be considered when negotiating are: (ii.1) it is presumed that the distributor's activities and zone are exclusive, therefore non-exclusivity must be expressly provided for in the agreement; and (ii.2) resale prices, discounts, payment conditions, minimum or maximum quantities, profit margin or any other conditions for sales must not be imposed by supplier or otherwise established in a written instrument, as it is violation of the economic order under the Brazilian Competition Law.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Week 10 Readings: What are the key criteria for choosing the best franchisor for yourself? What are the key success factors of the franchisor? How does the franchisor signal value?

Supersize The Franchise: McDonald's New China Strategy

BEIJING — McDonald’s is planning to expand franchising in China’s biggest cities, such as Shanghai and Shenzhen, for the first time since its entry into the country.

Since its founding in 1955, McDonald’s has relied on its franchisees to play a major role in the company’s global success. Franchisees account for 80% of the 30,000 McDonald’s restaurants in 120 countries all over the world, and they create more than 70% of the fast food giant’s profits.

Unfortunately, this model has not been successfully replicated in the Chinese market. When McDonald’s first entered China in 1990, it chose to operate its own restaurants, judging that its high operating costs wouldn’t give franchisees much of a profit margin and that China also had few regulations about franchising.

The company began seriously recruiting franchise partners in certain provinces of China in 2010, but McDonald’s franchises account for less than 5% of all its outlets China, and they are mostly located in smaller cities.

Now McDonald’s plans to change the situation. It hopes to double the number of its Chinese restaurants — to more than 4,000 stores — in the next three years. “Developing the franchise business will become an important factor for achieving rapid growth in China for our company in the years to come,” one of its senior executives says.

It is interesting to compare McDonald’s strategy with rival Kentucky Fried Chicken (KFC). “Compared with McDonald’s, KFC is a lot more open in this aspect,” says Kang Jianhua, a researcher who follows hotels and catering at CIConsulting. “Not only has KFC extended its regions allowing franchising, it has also lowered the entry threshold in certain regions so as to boost the retailer’s number of franchisees. Increasing the franchisees is KFC’s important tactic in raising competitiveness.” 

From 1990 to 2010, the number of McDonald’s restaurants in China grew at an annual pace of 17% — far lower than in certain other Asian-Pacific markets such as Japan. But by 2013, China had become the company’s third-largest market in the world.

McDonald's Chinese New Year set meal — Photo: HenryLi

Though McDonald’s restaurants outnumber KFCs globally, the latter has more stores in the Chinese market, with nearly 5,000 outlets. Even Dicos, a local chain offering Western-style food in 2,000 stores, outnumbers the American giant. 

Supersize it

“Size advantage plays an important role for chain store operation,” says Li Weihua, a franchising expert and professor at China University of Political Science and Law. “In a competition the value of the number of stores is not to be underestimated.” In Li’s view, McDonald’s is under enormous pressure to be more competitive in China.

Much of this pressure comes from McDonald’s itself. The company’s global income comprises three parts — earnings of its direct sales stores, service fees from franchisees, and the real estate operating income (property rental payments from franchisees). The latter two revenue streams are particularly crucial.

In 2012, as the company’s annual report showed, the franchisees had a $7.4 billion gross profit, more than twice the $3.4 billion of direct sale stores. Meanwhile, of the $8.9 billion of the franchisees’ turnover, $5.8 billion came from rentals.

“People usually think that we sell hamburgers. But in fact we are a real estate dealer,” the fast food empire’s founder Ray Kroc once said. That’s the secret to the company’s long success. Through long-term leasing or by purchasing land and then building, the retailer sublets the stores to the franchisees to help generate profits.

But this profit model didn’t work for McDonald’s in China. Because of China’s restrictions on land purchases and buildings with foreign funds, the food giant owns less than 10% of the properties its stores operate in China. In the United States and Europe, this figure is around 60%.

At the same time, rental costs in China’s first- and second-tier cities are rising sharply. Most McDonald’s stores are located in bustling commercial districts, and most of them have signed a lease for 10 or 20 years. Because many of these stores’ leases are about to expire, McDonald’s will be hit with soaring rental costs.

In Kang Jianhua’s opinion, expanding franchises will reduce pressure on the company in terms of rental costs and create more reveune with franchise fees. 

Of course, challenges will follow too. The first question is whether McDonald’s current management and overall operational capability in China are strong enough to support the franchising expansion. After all, the food giant’s development in China hasn’t been all that smooth, and China is still a less-than-ideal legal environment for franchising.  

Read the full article: Supersize The Franchise: McDonald's New China Strategy
Worldcrunch - top stories from the world's best news sources
Follow us: @worldcrunch on Twitter | Worldcrunch on Facebook

Tesla Motors to close shop in New Jersey due to franchising law amendment

http://www.lawyerherald.com/articles/4943/20140312/tesla-motors-to-close-shop-in-new-jersey-due-to-franchising-law-amendment.htm

On a conference call, Tesla Motors Inc vice president of business development Diarmuid O'Connell confided that the company could force-close its stores located in New Jersey should the state proceed to pass a proposed amendment to the existing law regarding auto sales. Businessweek said that the automaker recently learned that the New Jersey Motor Vehicle Commission is mulling over an amendment tha would prohibit manufacturers to get licenses to sell their cars directly in the area. The news agency noted that Tesla Motors does not have franchised retail dealers.

Like Us on Facebook

"Clearly, a decision was made rather abruptly and certainly without any consultation with us. There are probably a couple levels of bad faith and surreptitious behavior," O'Connell had said.

In the past year, car sellers in the states of Ohio, New York, Minnesota, Georgia had been seeking to block Tesla Motors for directly peddling its own cars. Dealers in Texas were able to successfully lobby stringent restrictions on the sale of Tesla's own models in the state, with Arizona, Colorado and Virginia imposing limits to the Palo Alto, California-based retail activities.

Tesla Motors said that the agency led by Governor Chris Christie will be deciding on whether the amendment should be done at 2PM in Treston today. Tesla Motors currently has two stores in New Jersey, Businessweek had said.

A spokesman for Christie, Kevin Roberts, said, "Since Tesla first began operating in New Jersey one year ago, it was made clear that the company would need to engage the Legislature on a bill to establish their new direct-sales operations under New Jersey law. This administration does not find it appropriate to unilaterally change the way cars are sold in New Jersey without legislation and Tesla has been aware of this position since the beginning."

O'Connell warned that its people in its New Jersey stores will be out of work should Christie and the commission decide to approve the rule amendment today.

Read more at http://www.lawyerherald.com/articles/4943/20140312/tesla-motors-to-close-shop-in-new-jersey-due-to-franchising-law-amendment.htm#XBbdAwzr8L4joeVV.99

Get our Franchise Newsletter

Looking for other emails from Entrepreneur? See all of our newsletters | No thanks

Why Healthcare Franchising Is Entering a Boom Time

BY Jason Daley | March 12, 2014|

Post Comment |

145

26

245

Illustrations © Theispot.com/Michael Austin

Of all the goods and services offered by franchises--giant pretzels, pest control, elliptical trainers--the most important is probably the one that goes least noticed: healthcare. In fact, many patients have visited a healthcare franchise without even realizing it. With the rising cost of healthcare and the millions of people expected to seek treatment under the Affordable Care Act, physicians, hospital systems and enterprising businesspeople have been searching for faster, more efficient and more affordable ways to deliver quality service. What they've found is that the franchise model can dispense routine medical care as efficiently as it delivers other products and services.
Mark Kirsch, a principal at the Washington, D.C., office of law firm Gray Plant Mooty, has helped several healthcare franchises navigate regulatory hoops in recent years. He believes there are numerous reasons for the gold rush in the sector, which includes franchised urgent-care centers, dental clinics, chiropractors, hearing-aid clinics, testing labs, billing services, massage clinics and other specialized concepts.
"There's a real demand for high-quality, moderate-cost healthcare," he explains. "Some people view things like teeth cleaning or regular checkups as a commodity, something routine that can be delivered with good quality at a good price, and more conveniently than the way they're provided now."
Another factor: The aging population of Baby Boomers is adding stress to the healthcare system and will take up a greater percentage of medical resources over the next few decades. That means the ability to serve more patients with fewer overhead costs will become a critical challenge for medical practitioners.
Tracy Weise--founder of Weise Communications, a Denver-based firm that provides marketing services to healthcare businesses, including franchises--agrees that learning to work with limited medical resources and a growing patient base is a major challenge. "If you look at the growing population and demographics, there aren't enough physicians, period, to cover people who need healthcare," she says. "There's simply not enough financial motivation for young doctors to become primary-care physicians. The amount of hours they have to work and the time they spend with insurance companies means they're not making money, and they're not doing the job they want to do."
Weise adds that the implementation of the Affordable Care Act doesn't mean there will miraculously be enough doctors to look after everyone who's eligible for coverage. "That's why franchising as a healthcare model makes sense. It creates the systems and processes that take the headaches out of insurance and billing," she explains. "It creates better access and greater access in a lot of different places. It takes all the best practices and implements them in a system to create the best delivery at the lowest cost in the most places."
It was the lack of efficiency in the current system that drove Miami-based hand surgeon Alejandro Badia to develop OrthoNow, an urgent-care franchise that specializes in injuries like jammed fingers, sprained ankles and dislocated shoulders. The company expects to open as many as 30 centers across the U.S. this year.

"OrthoNow was born out of a sense of frustration," Badia says. "As a hand surgeon, virtually everyone who came to see me had been someplace else before or had waited for hours in the ER and gotten an erroneous diagnosis. By the time they saw me three weeks later, their problems were worse and harder to treat. I sensed the way healthcare was run was a waste of time and money."
Once a franchisee of a now-defunct urgent-care concept, Badia believed a similar franchised clinic could work if it focused on orthopedic care--a place where a patient with a knee injury wouldn't have to wait for hours while life-threatening cases were prioritized.
OrthoNow, Badia says, is more cost-effective and offers better treatment than general treatment centers. "The truth is, you don't need a board-certified surgeon to see you if you have shoulder pain," he explains. "An orthopedic physician's assistant can do that job very well. And if a patient needs something like their knee or spine looked at, OrthoNow can funnel them to a sub-specialist."
The benefits for patients extend to their wallets, too, Badia contends. "If someone without insurance comes into an OrthoNow to see a provider and have an X-ray, it will probably cost $300--a bit more if they need an MRI or a cast," he says. "The hospital-affiliated urgent care down the street is four times that just for the assessment. The patient will have to finance $1,200 or put it on their credit card. Then [the clinic] will likely just refer the patient to the hospital."
John Leonesio, founder of Massage Envy Spa, left that successful system in 2008 and two years later went on to helm The Joint…the chiropractic place. He has helped grow The Joint to 140 units and hopes to open 120 more by the end of the year. The concept relies on economies of scale and a membership model to make chiropractic treatment affordable and convenient. By cutting out insurance companies, Leonesio says, The Joint reduces paperwork for employees and patients; additionally, the units stay open at night and on weekends, offering convenience for patients with busy workday schedules.
"We don't take appointments; we're walk-in only," Leonesio says. "When we asked customers what they wanted, they said they want a very good doctor and treatment that was convenient and affordable. If they hurt their back on Friday, they didn't want to wait until Monday morning to make an appointment."
The reason chiropractic treatment works well as a franchise, Leonesio argues, is that much of it is routine. Members of The Joint get four appointments for $49--about half the typical insurance deductible for chiropractic care, he says. Instead of seeking treatment only when they're in pain, patients under the membership model are incentivized to come in regularly to prevent problems and higher costs down the line. And for the 60,000 U.S. registered chiropractors, many of whom struggle to keep their practices open, The Joint can make financial sense.
"We can provide services more efficiently and cheaper than a traditional practice can," Leonesio says. "With our organization and technology, chiropractors can be a lot more efficient and still make a good living, which in turn makes a good franchise model."
Most medical franchisees are businesspeople who hire physicians and other medical staff to provide services. For the medical workers, there appears to be no stigma in being associated with a franchise. In fact, as doctors begin to understand the advantages of franchising--most significant, the reduction in paperwork and managerial duties--they are seeking jobs at franchise concepts.
"The big point of differentiation between the model we operate and working elsewhere is that a healthcare professional can focus on what they love about their craft: treating people and providing healthcare for them," says Scott Hoots, vice president of franchise operations at AFC/Doctors Express, an urgent-care franchise with locations in 27 states that was acquired last year by American Family Care. "They don't have to do payroll or fill out tax forms. They don't have to hire and fire people. Their sole focus is on patients, and that is what attracts high-quality doctors to the system."
There are other advantages, too. "Our compensation is competitive with other medical centers, and with a much better lifestyle. There are no beepers or being called in during the middle of the night," Hoots says. "Someone asked me the other day if we get good physicians. We're not getting flunkies or physicians hired right out of medical school. We have doctors at all career stages because of the benefits we offer."
Patients are also seeing the efficiency of franchising. While at a hospital ER the average wait is four hours, AFC/Doctors Express claims it can move most patients in and out in less than an hour. But being able to offer that kind of quick service means medical franchises need to ramp up quickly before the Affordable Care Act dumps millions of new patients onto the market.
"Forty percent of patients in the ER shouldn't be there," explains Russell Smith, director of franchise development for AFC/Doctors Express, who says the system will add 20 new locations in 2014. "They should be in urgent care, and they will soon move there. That's why we're rushing to open more franchises and corporate locations. The market itself has grown, and the Affordable Care Act is going to increase the number of patients we see on a daily basis."
As healthcare providers of all kinds struggle to keep up with patient loads, many more franchise concepts will emerge, The Joint's Leonesio predicts.
"Healthcare franchising started with eyeglasses a while ago, and more sectors have caught on. People are finding better, cheaper and more efficient ways to deliver healthcare services than other practices can, whether it's teeth cleaning, urgent care or back adjustments," he says. "There are still opportunities waiting to be found in every medical field."

Jason Daley

Jason Daley lives and writes in Madison, Wisconsin. His work regularly appears in Popular Science, Outside and other magazines.

As part of ongoing China rebound, KFC plans revamp in Q2

Yum! Brands' biggest obstacle in recent memory — the chicken supply chain and subsequent avian flu outbreak in China in late 2012 which led to a 41 percent drop in same-store sales in January '13 — had lingering effects throughout last year because it directly affected the company's flagship business in KFC China. But Yum!'s rebounding efforts are taking hold, executives said during today's earnings call, and all signs are pointing to a "strong bounce back" this year.
"2014 needs to be a show me, don't tell me year," CEO David Novak said during the call. "2013 was frankly a very humbling year. However, we used it as an opportunity. I'd go so far to say we did some of our best work in 2013."
For example, in response to the supply chain issue, KFC China launched a marketing campaign, "Operation Thunder," aimed at strengthening consumer perception about food safety. The company also launched a quality assurance campaign called "I Commit." Novak said since these initiatives rolled out, key brand attribute scores are nearly back to where they were before the crisis.
In addition to those marketing efforts, KFC also tightened labor scheduling and optimized "service levels with fewer labor hours." In Q2, the company plans to "restate the KFC brand," with major initiatives across every aspect of the business — from new products to menu management and marketing efforts, to new consumer touch points and digital technologies.
"Overall, our goal is to build off the momentum that we had coming out of last year taken into this year and continually get stronger in building consumer news and excitement for the brand," Novak said. "The goal is to bring new energy and dramatic news to the KFC brand."
U.S. Business
Domestically, CFO Pat Grismer said the company has largely completed its U.S. refranchising program; 10 years ago, about 25 percent of units were company owned, while 75 percent were franchised. Now, about 90 percent of U.S. locations are franchised.
"This has not only improved our return on investment capital but should also help deliver more consistent performance going forward given inherently lower profit volatility with the franchise business," Grismer said.
Taco Bell continues to be the bright spot in Yum!'s U.S. portfolio, generating two-thirds of domestic profits. In Q4, Taco Bell turned in its eighth consecutive quarter of same-store sales growth, up 1 percent, overlapping 5 percent last year.
The company hopes to continue that momentum this year with the national launch of breakfast and mobile ordering.
"Our breakfast offering includes three terrific destination breakfast products at incredible price points and we're now in the midst of training our teams for a national launch in the first half of the year," Novak said.
Taco Bell opened 86 net new units in 2013 and is on pace of growing from 5,800 units today to at least 8,000 units in the U.S.
Grismer said Taco Bell's solid performance offset disappointing results from both Pizza Hut and KFC.
Digital initiatives
Taco Bell's impending mobile ordering rollout underscores one of Yum!'s top strategic priorities — digital technology. Novak said in China, 70 percent of delivery orders come from online platforms.
In international markets, mobile ordering tests are underway at KFCs in France, the United Kingdom and Australia. And, in the U.S., online ordering at Pizza Hut accounts for about 40 percent of orders and more than $1 billion in total annual volume.
"Make no mistake, technology is among the highest priorities that we have in our company and all of our businesses are focused on ways that they can harness the power of digital technology to further differentiate our experiences for our customers," Novak said.
Emerging markets
Finally, Yum! Restaurants International turned in solid results — same-store sales growth of 2 percent in the quarter, including 3 percent growth in emerging markets such as Russia, Southeast Asia, Africa and Latin America. In 2013, YRI entered four new emerging markets — Tanzania, Ukraine, Argentina and Mongolia. The company said emerging market economies are expected to grow at almost three times the rate of developed market economies for the foreseeable future.
"We recognize that emerging markets will have their ups and downs. They are still going to be growing their GDP and we're on the 5 percent rate in the foreseeable future almost three times more than the developed countries. What we're focused on doing in emerging markets is providing affordable everyday value making our brands more accessible, more affordable to the emerging classes as the incomes rise. The big story that we have for emerging markets is just development opportunity," Novak said.
He adds that Yum! currently has about four restaurants per million people in China, compared to 60 in the U.S. Other investment markets include Turkey and Africa.

 http://www.qsrweb.com/article/227315/As-part-of-ongoing-China-rebound-KFC-plans-revamp-in-Q2

Why are franchise operations manuals important?

In its simplest form, an operations manual is effectively the instruction manual for running a franchise business. It should include information and guidance on all aspects of what a franchisee needs to do in order to run their business as per the operational and branding guidelines of the franchisor.
WHAT IS THE PURPOSE OF THE OPERATIONS MANUAL?
The franchise agreement governs the franchise relationship between franchisee and franchisor. Once a franchise agreement is signed, it cannot be altered (without agreement from both parties) for the term of the agreement (typically at least five years in Australia).
However, the operations manual can typically be changed at the discretion of the franchisor, depending on the terms of the franchise agreement.
Given this, the operations manual is a critical tool in influencing the behaviour and operations of the franchisee over time. It provides a franchisor with a level of control and ability to enforce desired behaviour and actions within the operation of a franchisee’s business, in order to uphold and protect the brand, but also provides the flexibility and freedom to be able to change and adapt the system to changing customer needs as well as new technologies and systems introduced to the franchise over the term of a franchise agreement.
 A BASIS FOR TRAINING
The operations manual can be used as the basis for initial franchisee induction and training. As the operations manual covers all areas of running a franchise business it should therefore be an effective base to provide training to a franchisee. Using it as the basis for induction and training will also help the franchisee become familiar with the manual, increasing its use and effectiveness within the system.
For a franchisee, the operations manual should be the first point of reference in relation to the running of their business. Initially, a franchisee will use the operations manual on a daily basis, as they familiarise themselves with expected operations and practices. As the franchisee becomes more comfortable and proficient with the operations of the system, they will refer to the manual less frequently, but it should still be a key resource for them in running their business.
WHAT IS IN AN OPERATIONS MANUAL?
A best practice operations manual will cover the following topics:

• Introduction
• Administration
• Compliance
• Customer service
• Products and services
• Marketing
• Human Resources
• OH&S
• Finance
• Merchandising
• Pricing
• Stock
• Cleaning and maintenance
• Security
• IT
• Reporting and performance

In addition, the manual will need to cover any business specifics relating to a particular industry or sector (for example – food safety for a food retail business).
Typically, the content within each of these sections will be broken down into smaller policies, whereby franchisees can easily search and find relevant information.
HOW TO FIND THE INFORMATION
It is important that any operations manual is as easy to use as possible. Having a comprehensive, detailed operations manual is pointless if it is never used by franchisees!
Making it easy to use and understand means:

• Using easy to understand language. No one likes reading legal documents, and franchisees will be less inclined to use a document they find hard to read. The language should be as simple as possible, whilst still remaining authoritative enough to ensure franchisees comply where relevant.


• A user friendly layout and design. Being able to find specific information easily (through indexing and search functions etc) - if a franchisee is unable to find the relevant information they are after, the manual will be of no use.


• Ease of update – documents can be updated in real time, as changes are made.


• Interactivity and engagement – an electronic format allows franchisors to include interactive and engaging content such as videos and online training modules.

While many franchises provide the traditional hard copy manuals to franchisees, an increasing number of franchisors are providing operations manual content electronically. This involves the use of an internal or cloud-based content management system that can be used to store all relevant documentation, policies and forms online.
In summary, an effective operations manual will form the backbone of franchisee operations, and can go a long way to ensuring the success or otherwise of a franchise system. A robust and comprehensive operations manual will provide an excellent return on investment through more improved and aligned franchisee performance.

Jacinta Caithness has more than 15 years in the retail industry and has worked with some of Australia's leading brands, including Boost Juice. She developed the franchise strategy and recruitment methodology for Boost Juice and Salsas at Retail Zoo, appointing over 160 franchisees within the domestic network over a five year period. Later, as CEO International and board member, she expanded the juice business globally.

U.S. Added 16,520 Franchise Jobs in January, According to ADP National Franchise Report

ROSELAND, NJ, Feb 19, 2014 (Marketwired via COMTEX) -- U.S. private-sector franchise jobs increased by 16,520 during the month of January 2014, according to the ADP National Franchise Report(SM). Broadly distributed to the public each month free of charge, the ADP National Franchise Report measures monthly changes in franchise employment derived from ADP's actual transactional payroll data. The report is produced by ADP(R), a leading global provider of Human Capital Management (HCM) solutions, in collaboration with Moody's Analytics, Inc. and is published by the ADP Research Institute(R).

"During the month of January, franchises created 16,520 new jobs, less than half the number created in December 2013," said Ahu Yildirmaz, senior director of the ADP Research Institute. "Although still a net contributor with ten consecutive months of strong gains, job creation among franchise restaurants weakened notably in January compared to prior months. In fact, our data shows that last month's franchise restaurant gains were significantly lower than the monthly average posted over the past 12 months," Yildirmaz added.

January 2014 ADP National Franchise Report Highlights

Click here to access the ADP National Franchise Report Infograph

The table below presents U.S. franchise employment growth over time, measuring current month growth, year-over-year changes, and the average monthly growth rate over the past 12 months.

How Mister Donut built 2,200 stores in the Philippines

Jerome Castaneda Tuguin was just a young school boy when Mister Donut opened its first store in the Philippines along Recto Ave. in Manila in 1982.  Now, Tuguin oversees a network of more than 2,200 Mister Donut outlets all over the country.  “Year after year, the number of Mister Donut stores grew, and now we have over 2,200 shops, including innovative tie-ups with leading convenience stores, petroleum  stations and cinemas,”  he says.

Jerome Tuguin

Tuguin is the general manager of Mister Donut in the Philippines, which is among the most well served markets of doughnuts or simply donuts.  He says the growth of franchising, the rise of the food kiosk industry, the penchant of the Filipinos for donuts and the vibrant economy provide opportunities for further expansion of Mister Donut in the country.
“We are optimistic that the kiosk and street stall industry which we belong to will continue to survive and thrive in the foreseeable future. The country’s strong economic performance these past couple of years as well as the positive outlook in the next three to five years will definitely sustain the demand for affordable, delicious, and value-for-money products offered by the kiosks and street stalls,” he says.
Mister Donut is an American brand that was established in Boston in 1955 and expanded rapidly through franchising.  Its products include donuts, coffee, muffins and pastries.  The Ramcar Group acquired the master franchise of Mister Donut in the Philippines through subsidiary Food Fest Inc. in 1995.
Tuguin says Mister Donut founder Harry Winokur banked on the idea that fresh donuts are best enjoyed with coffee.  Winokur started delivering fresh donuts to office workers in downtown Boston and eventually became a well-known donut establishment that offers delicious donuts and a special blend of coffee, now recognized as world-famous.
Many entrepreneurs expressed interest in Winokur’s idea and began selling franchises of his donut and coffee company to businessmen who share the same standards of quality, service and cleanliness.  As a result, Mister Donut opened in 275 locations across the United States and America.
Mister Donut expanded to other countries when Multifoods, one of the world’s largest food companies, acquired the business from Winokur.  In Asia, Japan’s Duskin Co. Ltd. obtained the rights of the Mister Donut trademark in 1983 and paved the way for the brand’s development all over the continent, including the Philippines.
Tuguin says in the Philippines, Mister Donut offers 60 varieties of donuts, which have the right degree of sweetness. “Mister Donut also offers baked products, sandwiches, light meals and beverages.  New addition to our donut line is our Pon De Ring, Do-ssant and French Cruller,” he says.
Tuguin, who worked for RFM Corp. and Seattle’s Best Coffee before he joined Mister Donut, is among the brains behind the growth of the franchising industry.  He obtained a degree in Economics from San Beda College and a Master of Entrepreneurship Degree from the Ateneo Graduate School of Business. He completed his secondary education at Manila Science High School in 1991 and his elementary education at Don Bosco Technical College in 1986.
Tuguin advises budding entrepreneurs to carefully study any business, before engaging in it.  “Research the company you are entering into. You already know of those fly-by-night franchises that comes at P25,000, but after you have received your acrylic food stand, nothing comes after, and there is no more support from the franchisor,” he says.
He says entrepreneurs should talk to other franchisees.  “That’s the only way to know the system, the products and the support that the franchise business is giving,” he says.
Tuguin says the franchisee should not depend too much on the franchisor.  “Do not think that the franchisor will do it all for you.  There’s a misconception that when you get a franchise business, your success is already guaranteed. The truth is, much of the hard work will come from the franchisee. A franchisor’s business model may be great, but without a franchisee’s commitment to the business, nothing great will ever be achieved,” he says.
He says Mister Donut helps franchisees become successful entrepreneurs, which also contributes to the growth of the brand.  He says despite the large number of competitors and new players in the market, Mister Donut strongly continues to be one of the largest donut chains in the country.
“In fact, last 2013, food industry has been challenged by the entry of new kiosk concepts in the market, not to mention the calamity that hit Visayas and Mindanao, but Mister Donut still managed to grow its sales and income compared to previous years,” he says.
“Capitalizing on the growth momentum of 2013, Mister Donut sees growth to continue this 2014, both in sales and number of shops,” he says, adding that franchising will continue to support the growth of the brand.
“The investment differs from brand to brand, depending on the type of equipment and product offering. Mister Donut’s franchise concepts start for as low as P145,000 only,” he says.
“While we have a strong marketing campaign, logistical support and brand presence nationwide.  Mister Donut has very simple operations with continuous training available for each member of the store team,” he says.
“In terms of the site acquisition, more than 30 years of experience has given Mister Donut an accurate read on site analysis. Mister Donut uses a scientific approach on studying its locations, giving the franchisee an accurate understanding of the site’s market, thus giving the franchisee great leverage against the competition,” he says.
He says Mister Donut will continue to team up with “would-be” entrepreneurs who see the value in being a Mister Donut franchisee as well as forging alliances with the biggest players in convenience stores, petroleum and institutional sales arena.
Tuguin says with over 2,200 outlets spread across the nation, Mister Donut has become the most accessible and most visible donut brand in the country today.  “We will continue to build Mister Donut shops in areas that will allow us to serve our products where our targeted consumers are located, thus bringing us closer to them,” he says.
“Mister Donut’s  adherence to serving products of the highest quality, continuous innovation, customer satisfaction, operational rapport with our franchisees, strong back-end support, and taking care of our people in the organization have allowed us to be on top of our game, so to speak. We will continue to work on making improvements in the way we do things so that we will be able to delight our customers,” he says. RTD