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Monday, July 15, 2024

A tough bet

By Quoc Hung

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Receiving a franchise is a way to quickly start one’s own business and achieve early stability. However, success in a franchise is not guaranteed simply by investing in the brand. The brand owner cannot assume that franchising will automatically lead to business success.

Nguyen Duy Tien Trung graduated from the finance faculty in the UK and worked there for several years before returning to Vietnam to get married and start his franchised business, Care With Love, in April 2021, during the Covid-19 outbreak. Trung’s decision to enter the mother and baby healthcare industry was driven by the practical need to take care of his pregnant wife and baby. Despite having no prior experience in this field, Trung saw the potential in the Care With Love service and convinced the founder to grant him a franchise for the brand.

Nguyen Thanh Nam, who owns the franchised shops of Phuc Tea, recognized the business opportunity that franchising presented. Having previously worked at Phuc Tea and enjoying the warm and energetic working environment, Nam returned as a franchisee when the market recovered after the Covid-19 pandemic. He had great confidence in the business model and invested all his money into opening Phuc Tea franchised shops.

Both Trung and Nam had a favorable start in their franchised businesses because they were directly involved in or had experienced the franchise service. They had a genuine passion for the brand and a deep understanding of its development trends.

Efforts from both partners

Care With Love, a home care service for mothers and babies, was initiated 11 years ago by Tran Thi Thao Vi and her husband. With 11 branches already established, the service aims to open nine more branches by the end of this year.

Vi’s decision to transition from a self-owned business to a franchise model was driven by her desire to reach more customers. She aspires to serve one million customers. However, the limitations of self-owned businesses, including financial capacity and human resources (Care With Love had only served 150,000 customers over 10 years), prompted her to turn to franchising.

According to Vi, brand owners who wish to franchise their brands must consider the extensive development of the business model. This includes making changes in various aspects such as packaging, legal matters, marketing, research and development, and operational processes. These changes enable the brand to be successfully franchised and help franchisees operate just as effectively.

Vi emphasized that the franchisee and franchisor must not only have a good understanding of each other but also possess confidence in one another. Both parties should engage in sincere study and discussion of operational issues and future directions after the franchise agreement.

This allows the franchisor to determine if the franchisee is genuinely passionate and suitable for the business, and if they have a complete understanding to move forward or step back at each operational stage. Vi noted that both sides should be transparent from the beginning and not solely focused on franchising or accepting the franchise at any cost.

Trung also believes that confidence is the key factor in building a long-lasting attachment to the brand in the franchise business. Despite opening his Care With Love shop in District 7 of HCMC during the first Covid-19 outbreak and subsequently facing a market downturn with the next wave, his business managed to survive thanks to the support and guidance provided by the franchisor in the face of risks.

With an initial investment of over VND1 billion, which included the franchise fee, training costs, and facility and material investments, Trung’s Care With Love branch in District 7 now generates stable revenue, with a monthly profit of 20%. He has standardized the working process with the franchisor and is studying the market for opening another branch.

Meanwhile, Nam’s Phuc Tea franchised shop in Long An Province recouped its capital within six months of operation. He has since opened a second shop with a take-away style and another in Tien Giang Province in early May. Nam’s relatives assist him in managing the three shops, and he spends only a few hours each day remotely overseeing operations and checking books and inventory. The monthly profit ranges from 20% to 25%.

Not so easy

Not all franchisors and franchisees achieve success like Trung and Nam. According to franchise expert Nguyen Phi Van, founder and chairwoman of Go Global Holdings, many brand owners lack a proper understanding of franchising and relevant legal issues. As a result, their franchising efforts may have loopholes or be unsuitable, leading to conflicts and disputes.

Tran Nhat Vu, chairman of Phuc Tea, stated that since franchising is still a relatively new concept with limited information and training, brand owners should strive to study and accumulate experience. Alongside developing the product, the franchisor should establish a clear legal basis for the franchising process.

“In the beginning, I thought that as long as I could sell my product, I could franchise my brand. I approached it with the mindset of a businessman. However, I encountered significant trouble with the fourth franchised shop due to the lack of a solid legal foundation. So, I sought the help of lawyers to establish a legal process for franchising. I believe that any business or cooperation, whether with family or strangers, is possible, but the legal aspects must be clear from the start,” Vu said. After eight years in business, Phuc Tea now has 136 branches, with 80% being franchised shops.

Nguyen Phi Van pointed out that investors who lack a correct and comprehensive understanding of franchising may choose unsuitable, ineffective, or unsuccessful models. Investors should not solely focus on successful franchise cases and rush into a decision. Instead, they should consider their own capabilities and commitment to select an investment that suits them.

If investors are entrepreneurial, willing to take risks, and ready to invest significant time and effort, they can buy a franchise and run the business. Those seeking passive income can make a financial investment and hire the brand owner to handle operations. Investors who are risk-averse should choose an established brand, while those who crave adventure and creativity may opt for a younger brand.

Choosing a brand with a strong market position often comes with a high franchising cost and requires tough negotiations. On the other hand, investors can get more favorable deals with emerging brands.

Regardless of the chosen brand or franchise model, investors should leverage the resources and support of the franchisor for various aspects, such as operations, human resources, and marketing. “Build a strong relationship with the brand founder and their staff to make the most of their resources, rather than solely focusing on negotiation for the franchise cost, as is commonly misunderstood at present,” emphasized Van.

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