I am doing this report on franchising. I am looking at The Body Shop as an example of a franchiser. The Body Shop has expanded hugely since it began life in a small shop in Brighton, East Sussex in 1976. It was a sole-trader business founded by Anita Roddick to enable her to raise her children whilst her husband was away. Originally it sold just over 25 hand made products in unusual packing. The Body Shop since has enjoyed rapid growth both in the United Kingdom and internationally through franchising.
As in any business The Body Shops main aim is to expand in as many countries as possible and make as much profit whilst keeping a good company name. Some of Anita's famous on-going campaigns are against animal testing, supporting community trade, and increasing the self-esteem of its customers through a popular advertising campaign and to turn The Body Shop 'green' to protect the planet on which we live. All of these have helped to build The Body Shops good and well- known name.
There is no doubting that Anita and many of her employees care about these issues but I think much of it is part of their long term business campaigning to achieve a long lasting generation to generation clientele. Action Plan I am investigating The Body Shop as an example of a company, which has expanded rapidly through franchising. I am going to look at their franchising agreements to see if the agreements are fair for both the franchiser and the franchisee. I will look at the finances of The Body Shop to see if financially their decision to operate franchises has benefited them.
I am going to look at their history, their products and how popular as a company they are. I am going to the following sources to find all the information I need; the internet, a visit to The Body Shop factory and as many books as I can. The Body Shops website will have all the information I need. I will discover how a franchise works and how they are controlled in my textbooks. Due to my visit to the factory I will witness their operation first hand, this will give me my own personal opinion. Section One A franchise organization is an agreement, bound by a contract by two parties.
In the case of franchising this is the franchiser and the franchisee. The franchiser is the company willing to allow the franchisee to licence their name, logo and experience of already owning existing shops and controlling existing franchises. This enables the franchiser (the existing well known company) expand faster. The franchisee is the sole trader or partnership willing to buy the name and set up his or her own business with minimal risk to themselves/themselves. This is the safest way to set up their first business or add to their empire. A contract is an agreement written up through solicitors stating the agreement.
This contract has to be signed by both parties with witnesses. If one of the parties doesn't stick to the decided agreement then they are liable for a fine or prosecution by law. The contract may have a review date or expiry date for when the contract can be abolished, renewed of altered. In a franchise often a set rate has to be paid by the franchisee to the franchiser. In the example of The Body Shop this is set at i?? 250,000. In return for this investment The Body Shop supplies the franchisee with a shop fit for their premises, this is consistent with all the other shops in the chain.
As well as this they provide them with enough stock for the shop and the storeroom. Once this stock has been sold the franchisee can buy further stock for 25% less than the recommend retail price. The franchisee also has to pay The Body Shop 2% of its profit annually. They also receive all the advice and training they require as well as organize and provide advertising for the outlet. The disadvantages of opening a franchise-controlled business for the franchisee are that they must follow all the rules set by the franchiser.
Also the franchisee cannot sell the business without permission and the franchisee will also never own the business but they own the premises. And in the most extreme cases the franchiser can end the contract without consulting the franchisee and don't have to pay compensation for the loss of a business. The Body Shop controls their franchises by rules and restrictions they set by contract for the franchisees. These rules are in place to make sure that the customer gets a good service and therefore wishes to continue shopping there. If they get a good service they are more likely to endorse the company to their friends.
These rules are in place because before these contracts were introduced you only have to own a British passport (and the money! ) to own an outlet. This meant that the franchisees were abusing the agreements and loosing The Body Shop it's good name. As the table shows The Body Shops revenue has increased in 2001 but decreased between 1999 and 2000. Yet their profit has became less every year, this could be because of many reasons. The first is the company are not as economic has they have been in the past, they are spending more on production and advertising etc.
The second is that they may be buying more of their franchised shops back to company owned shops. This shows that The Body Shop cannot budget its costs to increase its profits suitably for a business of its size. It is very expensive for the franchisee to invest in a company like The Body Shop because to get the investment fee of i?? 250,000 and the further required premises costs, stock costs and running costs they would have to take out a very large loan and are likely to require more. They are likely to need more money and get this through an overdraft. With less they would have to pay a very large interest rate.
The Body Shop have been operating franchises since 1978 when they opened a kiosk in Brussels. The Body Shop operates in 50 countries across 12 different time zones and in 24 different languages. They sell over 1000 different products. Their biggest outlet in a shopping mall in Canada and their smallest operated from a franchisee's living room in Malta. The Body Shop has 1917 outlets (September 2001) of which 74% are franchises. There are 299 The Body Shop outlets in England alone. The Body Shop operates mainly in the tertiary sector but does grow some of its own ingredients and produces some of the produce we buy in their stores.
They also have an agreement with a firm called Cosy which operates the rest of the secondary market for them. The Body Shop are a common sight on high streets, shopping centres, train stations and airports all over the world. These premises are more expensive to lease and often have more direct competition in the area. But in the location where the lease is more expensive the turnover is also. There shops are located near to easily accessible areas so that deliveries from their factory in Little Hampton. They would also look at local unemployment figures to see if they could get enough staff.
The Body Shop also sells products at parties, where somebody goes to the host's home and sell products to them and their friends. If The Body Shop wasn't a franchised based enterprise it could be a private limited company. If it were private it would be easier to control but would not have expanded as quickly. There would probably be fewer stores with less profit and a bigger risk to themselves if it went wrong. If The Body Shop were a Public Limited Company it would have to float its shares on the stock market. This would mean that the person with the most shares could overtake the company.
If the share price dropped there would be less potential shareholders to invest and the existing shareholders may sell their as they would find it more wealthy for themselves to invest their money some where else where they would get a larger dividend or more interest. This is why I think franchising has benefited The Body Shop the most. They still get 77% of the cost of everything brought but without the running costs, staff wages and the risk if anything happened. Conclusion I am looking during this section at the success or otherwise of The Body Shops decision to have The Body Shop be a mainly franchise operated enterprise.
I will measure the success of the company in many different ways. I will also look at whether franchising has improved or worsened the company. I will look at my opinion on whether the agreements could be improved and whether they are fair or not. There are many ways of measuring a company's success this includes turnover, profit, profitability, number of shareholders and their current price, customer satisfaction, volume and the size. I will look at each and draw my conclusions of how successful their decision has been. First I am going to look at the size of the company and whether it has increased or decreased over the past few years.
The Body Shop has 1917 outlets (September 2001) of which 74% (1410 outlets) are franchises and 26% (507 outlets) Company owned stores. They also have a large factory in Little Hampton and their U. K. headquarters. If I judge the company by its size I think it has been very successful thanks to franchising. It has increased enormously. Secondly I am going to look at the volume of sales made by The Body Shop, this is also known as market share. The volume is how much of the market does The Body Shop own, it is worked out by adding all the similar products sold each year and then work out how much the company has of it.
It is given as a percentage. The company does not distribute this figure but I estimate they probably own a significant share of this competitive market. I know this because of the fact that there is a Body Shop in almost every civilized town in the U. K. and U. S. as well as many in Canada and the rest of Europe. Now I am going to look at the turnover of the company and how much of this is converted into profit. Below I will include a table showing the turnover and profit for the last 3 years; 1999, 2000 and 2001.