How To Start A Franchise In The Philippines

Written by Marc Adrian Illustration by Bryan Chai

The Philippines is now known as the franchise hub of Asia, largely due to the astonishing rate of growth of franchising businesses in the country. The industry has only been in the Philippines for about 11 years but to date, there are now about 900 franchises all over the country according to the Association of Filipino Franchisers, Inc. (AFFI).

Franchising refers to the method of practicing and using another’s perfected business concept. In a franchise relationship, the owner of the business (franchisor) gives the independent operator (franchisee) the right to distribute his products, implement his business techniques and use his brand and/or trademark in exchange for a fixed franchise fee and in most cases a portion of the gross income (royalty fee, advertising fee, etc.).

Advantages and disadvantages of a franchise business

What makes this business model so attractive to a large number of people is that the franchisee comes with the proven formula so one does not have to start from scratch. Statistics indicate that the success rate in franchising is 90%. Traditional businesses, on the other hand, will give you a 25% chance of survival. So, if you’re the franchisee, you just need to follow the franchise’s exact system and you’ve got a significant leeway to acquire success, significantly cutting your risks in the process.

These advantages of a franchise business will help you in achieving success in your business:

1. The experience of the franchisor

When an individual buys a franchise, he purchases the years of experience and the proven methods of the franchise system, also known as the franchisor. In any new business, much time and money are spent on trial and error. A proven franchise may eliminate many of the start-up problems. This reason permits one to open a franchise business with little or no previous experience in a given industry.

2. High success rate

A franchise is a business model based on proven ideas and implementation, and comes with a reduced calculated risk.

3. Recognized brand and trademark

A franchise normally offers a product or a service that already has a market niche and is highly recognizable.  

4. Support

Franchisors discover and perfect operating and management efficiencies that they pass on to their franchisees. Franchisors often provide ongoing advise, research and development. Thus, new products and services will be brought to the attention of the franchisee as they become available.

5. Buying and advertising

Most small businesses cannot afford bulk inventory or extensive advertising. The franchisee buys this advantage when he or she purchases the right to use the franchise system’s purchasing power and advertising. Most provide advertising materials and marketing direction. At the same time, as the number of franchisees increases, so does public awareness.

6. Training

A franchise system will provide training for the new franchisee. This is usually done at the home office and at the franchisee’s place of business. This training should prepare the franchisee in running the business.

However, even a franchise business with all the pros come with its own sets of challenges. Here are some common challenges that a franchisee may face:

1. Working within the system

As franchising involves the use of a proven business system, the franchisee is required to follow the same. A franchisee cannot divert from this and loses the control that most business owners normally enjoy.

2. On-going costs

Aside from the franchise fee, franchisees are also required to pay for royalty fees or a certain percentage of their revenue on a monthly basis. Additionally, some franchisors charge for advertising costs as well.

3. The risk

Like any other business, getting a franchise has its risks. As a business owner, you are responsible for the success of the venture. The franchisor may have a great program and a respected name, but your likelihood of success is still in your hands. You will be required to provide tremendous time, hard work and effort. Assess your capabilities to run the business and seek special assistance from the franchisor if you find yourself lacking in that department.

How to franchise a business

If you do decide to go into franchising, here are some basic steps that you need to go through so you can decide which one is your most viable franchise option.

1. Choosing a franchise

Like any other investment, purchasing a franchise is a risk, albeit much smaller than when you start your own business. Take a closer look at yourself and know where your passion lies, then get to know the existing franchise opportunities in your chosen niche.

Now that you have a better idea of what franchise business that suits you best, it’s time for some serious research. So when selecting a franchise, carefully consider a number of factors, such as the demand for the products or services, likely competition, the franchisor’s background, and the level of support you will receive.

2. Choosing the brand

When you sign up for a franchise business agreement, you are basically buying the name of your chosen product or service. If you see its outlet numbers increased significantly, then it’s most likely a good business venture.

3. Check its legitimacy

Head off to the Department of Trade & Industry (DTI) office nearest to you and see if your chosen franchise is registered. You should also ask if the franchise is affiliated with any existing legitimate franchise groups such as the AFFI, Filipino International Franchise Association or the Philippine Franchise Association.

4. Consider the business model

Check if your chosen franchise business has a well-established business system. Does it conduct its business effectively? Is there any available support? Quality control, continuous research and development, and training should also be included in the overall package.

5)  Applying for a franchise of your choice

Now that you’ve done your research, you will need to prepare the required documents (usually a Letter of Intent to Franchise, an Application Form, and a Site Location Proposal), have an interview with the franchisor, sign the franchise agreement, and pay the franchise fee.

More information on how to apply for a franchise business below.

What’s included in the franchise fee?

Generally, the cost of franchising will vary on the type of business or franchise.  The overall cost, however, will cover all the necessary support needed for the business to hit the ground running.

The Mother Company or the franchisor will be providing continuous support to its franchises, including an initial training program for their staff. The franchisee will undergo a Basic Operations Training Program (BOTP) before they start their business operation. This, along with other training programs will enrich the franchisee’s management and analytical skills essential to operating the business they’ve chosen to franchise.

In general, franchise investment includes:

• Franchise fee
• Marketing study
• Store design
• Layout assistance
• Training programs
• Leasehold improvements (outlet construction)
• Equipment
• Pre-opening marketing expense, and pre-opening supplies

Other forms of assistance include:

• Store layout and design, equipment specifications, furniture and fixtures
• Construction management
• Creative advertising and marketing programs
• Product development
• Manufacturing and logistics facilities
• Consultative services for operations
• Manpower and personnel
• Recruitment and training of management team

General requirements in operating a franchise

Once you have made up your mind on which company to franchise, you are then required to prepare certain documents to legalize your ownership of the franchise that you have chosen. Below is a brief rundown of the list of documents that you must comply.

Preliminary documents to be submitted to franchising company:

• Letter of intent to franchise
• Application form
• Site location proposal
• To legalize your business or franchise:
• Business name registration from Department of Trade and Industry (DTI)
• Barangay clearance
• Business or Mayor’s permit
• Recommended Franchise Packages for ₱300,000 or Less

Top 4 franchise businesses in the Philippines

If you are looking to franchise a business with a small capital on hand, then check out the following:

1. Mister Donut Franchise

The Mister Donut Franchise was started in the US in 1955 and has been in the Philippine market since 1982. It has since grown to be one of the biggest donut chains in the country, now boasting more than 2,000 branches.

Types of package	Dine-in shops, cart franchises, and take away shops
Package fee	From ₱50,000 for a period of two years
Renewal fee	₱50,000 for 2 years
Total investment	Approximately ₱180,000 for entry-level packages such as the food cart. Inclusive of franchise fee. Investment for bigger stores can go over ₱500,000.

2. 7-Eleven Franchise

Texas-based Southland Ice Company pioneered the concept of convenience stores in 1927 by opening stores that sell bread, eggs, and milk even after regular store hours. In 1946, the company was renamed 7-Eleven to reflect its then operating hours of 7:00 AM to 11:00 PM. In 1982, the franchise arrived in the Philippines after Philippine Seven Corporation (PSC) acquired the license to operate it in the country.

To date, there are more than 2,000 7-Eleven stores nationwide, which places its convenience store market share at 70%. Currently, more than 55% of all 7-Eleven stores in the Philippines are franchised.

Types of package	Convenience store
Package fee	₱300,000 - take over an outlet that has already operated for a year. ₱2,000,000 - construction and initial inventory
Total investment	The standard package fee for a 7-Eleven franchise is ₱600,000 raking up to ₱2,000,000 including the store construction cost and the initial inventory.

3. Master Siomai

Master Siomai is a Philippine brand owned by Masterrific Foods, an 11-year-old company specializing in the production and distribution of processed meat such as ham, bacon, burger patties and siomai to its diverse clientele ranging from hotels, restaurants, and marketplaces. Master Siomai serves, chicken, pork, shark’s fins and beef siomai from a food cart. Currently, there are over 600 Master Siomai outlets in the Philippines.

Types of package	Food cart
Package fee	₱280,000 for a complete franchise package which includes: 1 unit - Japanese inspired food cart 1 unit - 5 cu. ft. chest freezer, 1 unit - acrylic plastic juicer 1 unit - food steamer 1 unit - complete food cart kitchen wares and plastic wares 1 unit - Initial food and paper products (approximately worth ₱7,000 ) Complete set of crew uniform Cleaning supplies Marketing collaterals.
Renewal fee	₱140,000 (50% of the franchise fee) good for 3 years
Total investment	₱280,000

4. Rice In a Box

Started at Manila’s Chinatown in 2000, Rice in a Box serves authentic Chinese food in take-out boxes. The company’s main products are varieties of fried rice and rice toppings that are prepared fresh in front of the customers. From food carts, it has found its way to stalls, mini-diners, and restaurants in major malls, supermarkets, and universities. There are currently over 150 Rice in a Box outlets in the country.

Types of package	Food carts, stalls, mini-diners, and restaurants
Package fee	₱350,000 Franchise fee Construction of cart/store 1 unit 8 cu. ft. chest type freezer 1 unit 30-cup rice cooker 2 units of griddle with stove 3 sets of service crew uniform One-week training (three service crew + one owner) One range hood One rice warmer One deep fryer Cooking utensil
Renewal fee	₱200,000 for 3 years
Total investment	₱350,000

The franchise is good for three years and can be renewed after the same.

The four brands listed above are far from exhaustive, but they are some of the most popular in the ₱300,000 price range. The cost, of course, can still vary depending on your intended location. Accordingly, it will be best to study the brand you want to franchise beforehand so you are fully aware of what you’re getting yourself into. A business plan – which is normally an important prerequisite in franchise applications, can also provide you with a definitive guide.  

But remember that picking the right franchise brand is only the first step, just like in any other business, one would need to put in the requisite hard work and careful management to make the business thrive.

Relevant agencies

Applying for a franchise will take more than just paying the franchise company the fee for their franchise package. Starting out will require a pile of paper works to accomplish to legitimize the business. Below are the following agencies that you can expect to come across along the way.

Philippine Franchise Association (PFA)

Unit 701 OMM-Citra Building

San Miguel Avenue, Ortigas Center, Pasig City

Tel. Nos.: 687-0365 to 67; 798-2543; 579-4841

Mobile: 0917-8320732 ; 0999-8833732 ; 0932-8792732

Fax No.: 687-0635

E-mail: pfa@pfa.org.ph

URL: www.pfa.org.ph

Bureau of Trade Regulation and Consumer Protection (BTRCP)

2/F Trade and Industry Building

361 Sen. Gil Puyat Avenue, Makati City

Tel. Nos.: 751-0384 loc. 2221-2229

Fax No.: 890-4949

E-mail: btrcp@dti.gov.ph

Securities and Exchange Commission (SEC)

SEC Building, EDSA, Greenhills, Mandaluyong City

Tel. Nos.: 726-0931 to 39

Fax No.: 725-5293

There you have it, a short rundown of the franchising concept. It is definitely the simplest and most guaranteed way to own a business with established reputation and image, proven management and work practices, access to national advertising and ongoing support. Despite the jump start that you get from franchising a business, though, you still have to be mindful of the pitfalls that you might encounter along the way. As always research is the  key. Be informed and you can be assured to become among the whopping 90% franchising success statistic.