The trend of franchising strategy is very attractive to startups. Franchising has grown significantly in Da Nang, and is now present in almost all business sectors, including food and beverage, retail, fashion, health and beauty services. This model is considered a new direction for startups in the city.

A new business start from a successful franchise brand in a bid to reduce the time it takes to reach customers. IN PHOTO: A coffee shop on Ho Nghinh Street, Son Tra District now operates under Milano brand. Photo: CAO TAI

The benifits of franchising

Dr. Ha Thi Duy Linh, an innovation consultant for National Innovative Startup Ecosystem and a lecturer at the Da Nang College of Commerce said that franchising provides significant benefits for franchisees. One of the benefits of franchising for the franchisee is the business assistance they receive from the franchisor for marketing and promotion strategies. From a franchisees perspective, it allows the franchisee to get into business with support, a brand name and a proven business model. This helps to reduce the risks involved with getting into business. A big benefit that franchisees receive when opening a franchise is brand recognition. If you start a business from scratch, you would have to build your brand and customer base from the ground up, which would take time.

Ms. Le Nhat Vien, the owner of the sportswear store that operates under ‘the World Workout’ brand, located on Ngo Gia Tu Street, Hai Chau District said that franchises can use a recognised brand name and trade mark, and they benefit from any advertising or promotion by the owner of the franchise - the franchisor. Franchising is a suitable option for those who are passionate about starting a business or being self-employed, Vien added.

Vien didnot waste time sourcing products for her store, planning and designing advertising campaigns, as well as decorating her store while using the franchise business model. During the recent wave of COVID-19 in Da Nang, Vien has enjoyed constant support from the franchisor 'World Workout’in order to help her store get through the pandemic. In addition, the franchise brand has undertaken that it would not charge fees for the privilege of buying and owning the franchise if Vien’s store donot hit sales target.

Vien says she is very happy as her business is growing well and she is planning to open more stores in the city.

In a similar move, Mr Doan Nguyen Minh Kha, the owner of a coffee shop on Ho Nghinh Street, Son Tra District said that his coffee shop is operating under Milano brand, and he has received support from the franchisor for training bartenders.

Kha said that there are different types of franchise models that offer a wide range of options for those who want to start a business. Franchisees can use the franchisor's brand, which helps them shorten the time it takes to reach customers.

He also noted that guests feel secure at his shop as all kinds of drinks are offered at given prices set by Milano brand, and all supplies come from the franchisor.

Identifying the right goal

Buying a franchise is often seen as prohibitively expensive, and the initial franchise investment is VND 3 billion to VND 5 billion  for a well-known brand. In addition, the franchise agreement usually includes restrictions on how you can run the business. Therefore, you should need to carefully consider how much it will cost you to buy a franchise, risks, and monthly fixed costs.

Doan Nguyen Minh Kha highlighted the need for startups to identify their own capabilities, including financial capability, resources, and target customers in order to clearly define their goals for success. There are many types of franchises available in the market, and startups need to choose the best one that is perfect for their needs and expectations.

According to Dr. Ha Thi Duy Linh, franchising has also some difficulties which are strict rules and dependency. For most franchisees, the most frustrating disadvantage that they face is that they must follow the restrictions laid out in the franchise agreement.

Drawing from experience on the Tocotoco Store located on 79 Nguyen Van Linh, Da Nang in 2018, the franchise agreement usually includes restrictions on how you can run the business, and you are not able to make changes to suit your local market. In addition, there is a higher chance that franchise agreements can be terminated for failure to comply with these agreements.

Franchisees are advised to only sign a franchise agreement or other forms when they fully understand them in order to identify risks to their business and take full advantage of of franchise opportunities.

Reporting by CAO TAI – Translating by H.L