What is Master Franchising? (And When Does It Make Sense?)

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If you’re looking to expand your business, especially into new regions or countries, you may have come across the term master franchising. In simple terms, master franchising is where a franchisor grants one party (the master franchisee) the rights to develop and grow the brand in a specific territory, which may include them setting up their own corporate outlets, sub franchising to others or a mix of both.

So, instead of the franchisor dealing directly with each individual franchisee or business operation, the master franchisee will generally:

·         Set up their own outlets

·         Recruit and manage local franchisees

·         Provide training and support

·         Help grow the brand and network within their region

Why businesses use master franchising

For franchisors, it can be a powerful growth strategy:

·         Faster expansion into new markets

·         Local expertise from someone who understands the region

·         Reduced day-to-day management in that territory

For master franchisees, it’s an opportunity to:

·         Build and manage an entire network

·         Share in franchise fees and ongoing royalties

·         Grow a scalable business under an established brand

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What to watch out for

Master franchising can work extremely well, but only if it’s structured properly and if you’ve done your due diligence to ensure that the territory can sustain a master franchise set up, and that you then appoint the right parties.

Some key considerations include:

· Ensuring you have done your due diligence to understand the laws of the territory you are granting (not just the country but also the potential State/Territory within the relevant country), and where necessary, have adapted the model, documents and processes to ensure they are both legally compliant as well as reflect the necessary commercially realities of the region chosen;

· Doing due diligence into the franchising partners to be appointed and getting the right documents in place from the outset;

· Clearly defining territory rights and exclusivity;

· Ensuring that each franchise grant can get a return on its investment (even more important in Australia now due to the recent changes to the mandatory Franchise Code requirements on this issue)

· Ensuring the intellectual property is properly registered within the Territory and licensed; and

· Aligning expectations around growth targets and support;

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Some Final thoughts

Master franchising is often used for international expansion (for example, a an overseas brand entering Australia or an Australian brand entering another country), but it can also work within Australia for regional growth. Done well, it can accelerate expansion and unlock significant value. Done poorly, it can create long-term disputes and brand risk.

If you’re considering master franchising whether as a franchisor or master franchisee, it’s worth getting the structure right from the start.

Contact our team for a fuller briefing, market-entry roadmap or review of your proposed structure.

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Please note that this is a general and brief update; it does not purport to be comprehensive legal advice of all information and/or relevant to your circumstances. Consequently, specific legal advice for each of your circumstances should be obtained first before taking or not taking any action with respect to this area.

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