Joint Venture Franchising
Partnering for success in high-investment and global markets
Franchising is widely known as a flexible model for business growth and brand expansion at pace. A major advantage of franchising is the various franchise models available to suit particular business requirements.
Franchise models include:
- Business format franchises
- Product distribution franchises
- Management franchises
- Investment franchises
- Joint venture franchises
At Ashtons Franchise Consulting, our role is to draw on our expertise and consider which model – or models – best suits the business operations for our clients. Once that is established, the model can be developed and the commercial terms agreed so that a compelling, sustainable and profitable franchise operating platform can be launched.
Here, Charlie Dickson focuses on joint venture franchising. This is a lesser-known franchise model but has proven highly successful in certain business sectors.
What is a Joint Venture (JV) Franchise?
A joint venture franchise is a collaborative approach that essentially assigns a franchise to a joint venture company.
The JV company is owned jointly between the franchisor and the JV partner franchisee under a Shareholder Agreement, which details the equity that each party holds in the new venture. The equity stake can vary depending on the investment that each party holds in the JV company (50/50, 60/40, etc.).
Profits are shared based on the equity held by each party. The JV company signs the Franchise Agreement and operates the franchise under the terms, systems, processes and operating methods specified by the franchisor – in the same way as any other franchisee.
Why use a JV model?
In cases where the franchise investment level is significant, it can create a barrier to entry for suitably experienced candidates who can’t raise the necessary funds. A joint venture franchise is a vehicle whereby a franchisor and a franchisee jointly invest in a franchise start-up. JV franchise models work well where the start-up capex is high, which could otherwise restrict high-calibre, experienced prospects from joining the franchise business.
A JV franchise can also be a useful business structure to launch international expansion.
In certain countries, a franchisor is required to open and operate its own corporate units before embarking on developing a franchise network. Establishing a JV with a potential franchise partner can allow the franchisor to comply with this legal requirement and enter a market.
A JV model could also be applicable as a platform to test a franchise system in a new market before launching a fully-fledged franchise. McDonald’s and Starbucks have both used JV models to enter and expand in international markets, leveraging local knowledge and expertise, ensuring successful market entry and driving growth.
In the UK and internationally, Specsavers, the opticians, operates a unique, highly successful JV franchise business model that has resulted in the business becoming a major high-street brand, delivering professional, high-quality eye care products and services.
What are the advantages of a JV franchise?
There are several tangible advantages to adopting a JV franchise model:
- As well as “opening the doors” to franchise candidates who can’t meet the investment requirements on their own, there is the benefit of both parties sharing the financial burden and associated risks.
- Combined expertise, accelerated expansion and access to local markets.
- For franchisors, they have the added benefit of additional controls and influence over and above the Franchise Agreement through the JV Shareholders Agreement.
This control can extend to all aspects of the franchisee’s operations such as:
- Recruitment
- Staffing levels
- Site selection
- Business planning
- Pricing
- Marketing activities
In essence, franchisors adopting a JV model can provide greater assistance, support and guidance to the franchisee.
What are the challenges of a JV franchise?
Given the structure of JV franchising, managing a JV requires:
- Clear agreements
- Strong communication
- A collaborative mindset to navigate potential conflicts and ensure smooth operations.
It is crucial that the franchisor and the JV partner are committed to working together and are aligned on strategy, values, and objectives. JV partners must fully understand their roles, responsibilities, and the commercial and legal arrangements. Balancing control between the franchisor and franchisee can be challenging, particularly in business planning and decision-making. Franchisors recruiting JV partners need to exercise particularly careful due diligence before awarding a JV franchise.
In addition, as profits are shared under a JV model, this might reduce the individual financial gains compared to owning a franchise outright. This can lead to potential disagreements on financial reward versus time invested in the business. However, this can be dealt with by including in the shareholder agreement a salary for the operating franchisee to cover their responsibilities and management of the franchise unit on a day-to-day basis. Also, it’s worth considering exit strategies with JV partners to ensure these are aligned.
Summary
In summary, a JV franchise business model can be an attractive proposition to consider when evaluating the right franchise system for franchisors to deploy. A JV franchise is particularly applicable when the investment levels required to launch a franchise prohibits otherwise strong candidates from buying into a franchise.
A collaborative, partnership approach is critical, as is good communication, and alignment of: values, ways of working. goals and aspirations. JV franchising can also be beneficial as a route to launch and test a franchise in a new, international market. Franchisors who want to exercise greater control over their franchisees may also be attracted to JV franchising to achieve their goals. As well as the franchise agreement, a detailed JV shareholder agreement outlining roles, responsibilities, profit-sharing arrangements and potentially a salary for the partner operating the franchise on a daily basis are essential.
