Franchising as an expansion model for business, if done right, is the perfect recipe for success. Operating under various models and formats, franchising is a world of its own. The FOCO model of franchising has seen several favourable and indeed profitable outcomes, making it one of the most popular franchise-operating business models. FOCO stands for Franchise Owned Company Operated, which even though is quite self-explanatory, is not without its own nuances.
What is FOCO Model of Franchising?
Before we delve deeper into what this model entails, let us agree to call the franchise owners as the franchisees and the brand or the company as the franchisor. The franchisor already has a successful and profitable business model and the franchisee (investor) simply needs to invest in the said business in this model.
The initial investment and the set-up cost is borne by the investor or the franchisee (franchise owned). The business officially belongs to the franchisee; however, the operations of the business is entirely run by the franchisor or the company (company operated).All the operational cost such as property rent, salary of staff, training, electricity and other utilities, marketing, advertising and logistics etc. is taken care of by the franchisor.
Simply put, the franchisee just invests the money into the already successful business and helps in the expansion of the brand. Rest, all thedaily operations are handled by the company. This franchise model works really well for both the players in business in terms of return on investment through minimum guarantee. FOCO model is usually preferred by such investors who already have a different primary source of income.
Why choose the FOCO Model?
- Primarily, this model ensures risk-free investment for the investors or the franchisee partners as the company bears all the store cost operations.
- This model promises assurance of a minimum guarantee of the revenue shared (fixed percentage of profit shares) for the franchisees.
- Even-handedness is maintained in the franchisee-franchisor relationship. No operational cost needs to be borne by the franchisee while, the capital expenditure need not to be taken up by the franchisor.
- FOCO model franchise benefits the first-time business owners, who may lack experience and business acumen. This is a great learning opportunity for such franchisees as well.
- Quality service or product is ensured since the brand is operated and managed by the company itself and therefore, brand standards are properly met.
- Since the business responsibility is shared between the two parties, a franchisee can focus more on profitability and sales, while the franchisor maintains the operations and logistics. Such working partnership reaps benefit for both.
Thus, FOCO model of franchising is a win-win situation for both the franchisee and the franchisor. The brand name and trust are maintained along with smooth running of the franchised outlet. The minimum guarantee with respect to ROI ensures financial security for the investors. The ease and flexibility of this model is appealing to budding entrepreneurs as the best-fit franchise option.
Understanding FOCO Model with help of examples:
Explanation along with examples will be best for understanding this model.
The finest example of FOCO model in the food and beverage industry is McDonald’s. Across the globe, McDonald’s have standardized menu, packaging, raw materials etc. to ensure the delivery of the exact same product, worldwide. All the franchised McDonald’s outlets replicate the same business model, thus maintaining transparency and optimization. A franchisee of McDonald’s bears the initial cost of investment while the company (McDonald’s Corporation) looks after the daily operations. The trained staff, recipes, interior, raw materials and logistics etc are all provided by the McDonald’s Corporation, thus maintaining quality standards and uniformity throughout.
Examples can be quoted from Indian market segment as well. Dr. Lal Pathlabs, the most well-known diagnostic and pathological centre, runs on the FOCO model of franchising. All the testing equipment and tests are provided by the company, maintaining standardization across all the centres. The franchisee oversees the smooth sailing of the diagnostic centre and bears the initial cost investment.
Similarly, Ferns and Petals, a flower and gift delivery store,works on the FOCO model of franchising throughout India, operating in 50 cities over 150 outlets.Other examples like Barista Café, Chroma, QuickAuto Services, Bistro 57 etc. can also be quoted for successful running of FOCO franchise model in India.