Page 39 - Business Principles and Management

C HAPTER 1 A SSESSMENT

CASE 1-2: Know Your Franchise
Fast Snacks is a food franchise that sells outlets to entrepreneurs inter-
ested in opening their own businesses. The business sells a variety of
healthy snacks and drinks that can be prepared rapidly. It requires only
a small, inexpensive location for the food preparation area and a sales
counter. The franchisees are usually quite successful because of the strict
rules set by the franchisor. Start-up costs are not as high as those of sand-
wich shops and small restaurants. Because the franchisor is very careful
about who owns a Fast Snacks franchise in order to maintain a low fail-
ure rate, many applications are rejected.
Emi Tanaka and Rosa Lopez, two friends who have known each
other for years, decided they would like to quit their jobs and go into
business for themselves. Neither friend had been a manager or run a
business before, but Rosa had worked several years at a large full-service
restaurant and Emi’s parents ran a small clothing shop where she had
worked part-time until she graduated from high school. Both agreed that
a new, unique fast-food business would be an excellent idea for their
community and even agreed on a downtown location. Both liked to cook
at home and had visited many restaurants. They agreed that a nice place
in the business district of their town would attract shoppers, workers, and
others. Both believed they could raise enough money to get started.
Emi and Rosa believed that a franchise business would be the best
choice, and both seemed to have adequate money to invest. They
checked the local library and Internet resources for franchising infor-
mation and found a long list of possibilities. They studied the list and
decided Fast Snacks was their favorite. They gathered as much informa-
tion as possible, contacted the Fast Snacks headquarters, and obtained
and mailed an application. They were excited when the manager called
them for a meeting. However, they were surprised to learn that although
the start-up costs were low, the franchisor collected 8 percent of sales.
After thinking about it for a few days, they decided that because the
franchise business had a great reputation, it could not fail. There was
no need to check with other franchisors.

THINK CRITICALLY

1. Did Emi and Rosa make any mistakes in how they made their de-
cision to select Fast Snacks? Give reasons for your answer. (With
directions from your instructor, you may prefer to form groups
of three to five students. Half the groups should argue that Emi
and Rosa made the right decision, whereas the others should argue
that they made the wrong decision. Each group should then pro-
vide reasons for the decisions.)
2. What advice would you give Rosa and Emi as they prepare to
open their business to help them become successful and make ade-
quate profits?
3. The franchisor of Fast Snacks is considering selling franchises in
locations that are much nearer to each other in order to have more
franchises. That might result in lower sales and profits for each fran-
chisee, but higher franchise fees as well. What are the advantages and
disadvantages of the current policy for new franchise locations?

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