Identify the statement that is NOT an advantage of franchising to the Franchisor.
Answer & explanation
Correct answer: option 2
The correct answer is option (2) - Continuing cost implication.
Continuing cost implication is not considered an advantage of franchising to the Franchisor.In fact, due to franchising, the franchisor derives various cost benefits. In a franchise arrangement, the franchisee usually bears the ongoing operational costs, and the franchisor benefits from receiving a percentage of the franchisee's sales as royalty fees. The franchisee is responsible for day-to-day expenses, and the franchisor's revenue often comes from franchise fees, royalties, and initial investments rather than ongoing operational costs.
The other options are advantages to the Franchisor as explained below:
- Quick expansion: Franchising allows brands to expand rapidly without the need for substantial capital investment and operational burden. Franchisees take on most of the financial and operational responsibilities for opening and running new locations.
- Economics of Scale: As the franchise network grows, the franchisor gains benefits from economies of scale, like bulk purchasing discounts, bargaining power with suppliers, and wider brand recognition.
- Fewer employees:Operating a franchised business requires fewer employees than a non-franchised business. Headquarters and regional offices can be lightly staffed, primary to support the needs of the franchisees. This allows the franchisor to maintain low payroll and minimizes personnel issues and problems.