Franchise operation info
     Franchise operation is called vividly ¡°contracted marriage¡±. When you have decided to join a franchise organization as a franchisee, it is especially important to fully understand the emerging business pattern of franchise in China. Explanations are made below on the basic knowledge of franchise operation. After you have got enough knowledge about franchise, you can choose proper investment project and franchise headquarters according to your own situation.
     Franchise operation refers to a business cooperation form where through contract, the franchiser authorizes the franchisee to use the business resources such as registered trademark, brand, patent, specially owned technology, and business pattern that can be authorized to others to use. The franchisee conducts independent business pursuant to the contract and under the unified operation system, and pays the franchiser expenses involved with franchise operation.
     Since the existence of the franchise enterprises have the basic characteristics of chain operation such as unified image and unified management, it is also called franchise chain. The franchiser can directly authorize the franchisee the franchise operation right according to the contract, and the franchisee invests to set up franchise operation stores, but it cannot convey the franchise to others. The franchise operation pattern of FORNET headquarters is the franchise of operation pattern, which is called ¡°second generation franchise operation¡±. The franchise operation mentioned by people now is this kind of franchise.
     All the franchisees join the franchise operation are independent owners, and have self-mastered human resources and financial management, unified business and pattern, and must accept the guidance and control from the headquarters. The franchisees and the headquarters are linked by franchise contract. Generally, all the franchisees in the system have no legal relations, and only the franchisees and the headquarters have legal relations. The two parties are independent business entities, but they must form an external image with unified capital under the contract, and realize the benefit of enterprise federation.
     Through contract, the franchise headquarters allows the franchisees to use the whole set of software, and require the franchisees to do business pursuant to the pattern of the headquarters. The headquarters has the right to supervise and direct the franchisees, train the franchisees, and provide assistance and service for the franchisees specified by the contract. The basic provisions of the franchise contract are made by the headquarters. To maintain the unification of the brand, the franchise applicants have no chance to modify the contract provisions. The franchisee must abide by the contract, and operate the enterprise according to the sales or technical plan by the headquarters.
     The franchise headquarters provides franchise license and business guidance that should be paid by the franchisees. Once the headquarters accepts the application from the franchisee, the franchisee is allowed to use the trademark, chain store name, technologies developed by the headquarters in production, processing, sales and service and other business aspects. The headquarters should continue to provide various kinds of guidance and assistance during the valid period of the contract. This follow-up service aims to help the franchisees understand, absorb and copy the special technologies, and get onto the normal track as soon as possible and get benefit. The franchise needs to pay for acquiring these rights, which is to pay the headquarters certain amount of money. Generally, the franchisee should pay the franchise fee in lump sum when signing the franchise contract. For the guidance, service and unified advertising and promotion, the franchisee should pay the headquarters brand royalty and advertising fee, etc. every month according to the contract. These expenses will differ based on the sequence of the franchisee, number of franchisees, headquarters brand value, service contents of the headquarters, and commission is made based on gross profit or sales revenue or in fixed amount.
     This operation pattern is very attractive to people who have limited capital, few experiences and are eager to open a store. For franchisee, the owner does not need to have certain technology or experience, and can directly get the successful experience and management technology of the headquarters and the long-term guidance and service after paying certain amount of franchise fee. More importantly, the franchisee can make use the of franchise system to form network resources, absorb the wisdom of different people and establish personal course. ¡°Make use of other people's ladder to reach the development goal of oneself¡±, so as to save the time for exploration and reduce investment risks.
     The major reasons for franchise operation to become popular in the world and a major pattern for multinational chain stores are:
     First, franchise operation is a license of business technique and operation pattern, an authorization of intellectual property, thus it is not restricted by capital, area or time, etc., and can have several chain stores at the same time, and it is not necessary for the headquarters to invest and set up the stores one by one as normal chain stores do. Franchise operation is a conveyance of software technology, a conveyance of intangible assets, not influenced by hardware equipment, thus it can develop in any areas with consumers.
      Second, franchise operation is a chain operation pattern good for the country, the franchise headquarters, the franchisee and the consumers. For the country, especially for developing countries, introducing unique franchise projects means introducing advanced business management experiences from foreign countries. It only needs few investment get large benefit. It can save trouble and time, and drive the development of the whole chain store industry. For franchisees, they don't need to explore the path for a new course, and only need to pay the headquarters certain amount of franchise fee to use the famous name of the headquarters, and get long-term guidance and service from the headquarters, thus the investment risks are reduced. For consumers, the products or services provided by a famous brand are reliable, and the services have high level, and the consumers' rights can be fully guaranteed, therefore, the consumers welcome franchisees.
     Franchise operation benefits the franchisees:
 ¡¤ Reduce the business risks and increase success chances.
 ¡¤ Can get systematic management training and business assistance.
 ¡¤ The franchisee can make batch purchase, which reduces cost and guarantees the supply.
 ¡¤ The franchisee can use the famous trademark or services.
 ¡¤ The franchisee can reduce the expenses in advertising and promotion, and reach good promotion effect.
 ¡¤ The franchise can easily get financial assistance from the headquarters or banks.
 ¡¤ The franchisee can get protection in the distribution area from the headquarters.
   Disadvantages of franchise operation to franchisees:
 ¡¤ The business is strictly restricted and lacks of self-mastery.
 ¡¤ When the headquarters makes the wrong decisions, the franchisees will suffer.
 ¡¤ The overly standardized products and services are stubborn and lack of innovation, and may not fit in the local situation.
 ¡¤ When the growth rate is too high, the follow-up services from the headquarters cannot catch up.
 ¡¤ The retrieval and conveyance of the franchisee will be restricted by relevant contract provisions.
     It is worth noticing that there is a popular view that franchise operation is safer than opening a store independently by yourself. From a broader view, this is correct. In the US and Japan, this judgment has been proved by statistics: 90% of the new startups go bankrupt in five years, while only 10% of the franchisees go bankrupt in five years. These two figures demonstrate that among the methods of entering a new business, franchise operation is safer than independent store. But the high success rate of franchise operation doesn't necessarily mean it never fails. Normally the franchisee candidates have a biased understanding of ¡°franchise operation is safer than independent store¡±, and form a wrong view: he can earn a lot of money with no pains as long as he signs a franchise contract; he overestimates the capability of franchise operation and sets his alarm off, and neglects the detailed condition of the franchise system. He neglects an important premise, i.e. it is critical to choose a proper franchiser.
     In a word, franchise operation is not a shortcut for instant wealth. Successful franchisees can only be made by hard word. What franchise can do is to reduce the risk of opening a new company. Its main benefits are the franchiser helps solve the common problems faced by all new companies once the franchiser sells its experiences accumulated in running his own business. Franchise operation should provide the franchisee with a proved successful business operation pattern and thus cannot be regarded as a way to earn money without effort.
     Analysis of the Current Situation of Laundry Industry:

     As a social service sector supporting the clothes and accessories, laundry industry is closely related to people¡¯s daily life. With the development of economy and the improvement of living standard, the socialization of housework is wider. The advancement of science and technology enables the development of new clothes and accessories. These factors bring the needs for professional laundry service, and also provide a broad market space for laundry development.
     The enhancement of material life and the increase of spiritual needs bring higher requirements for the quality of services while satisfying the requirements for quantity. When people seek for perfect clothes cleanness, they hope that the clothes can be safely treated and enjoy pleasant service experience. Laundry stores with bright store image, skilled fabric care technology, professional reception service and good business credit become the top choice for modern consumers who seek for living quality and taste. We believe that with the further development of national economy, more and more consumers will fall in love with such laundry stores.
     The consumers are having more and more choices, and the competition in service industry becomes fiercer. The forge of brand becomes the inevitable choice of companies. Brand chain store operation becomes inevitable to guarantee the sustainable development of laundry industry. Demand determines existence. The bright visual image, dry cleaning equipment that is in compliance with environmental protection discharge standard, comprehensive and tidy hardware equipment, satisfying reception service, professional and high quality laundry technology, as well as fast and convenient service quality are the comprehensive embodiment of people¡¯s demand for laundry.
Let us investigate into the current condition of laundry industry in China to find out whether this kind of need is fully satisfied:

Type

Laundry factory

Hotel and restaurant laundry room

Private laundry store

Standard laundry store

Operation pattern

The laundry pickup center picks up the laundry, factory mode operation, unified cleaning, pressing, scheduled pickup and delivery. Socialized wet cleaning has a high proportion.

Mainly for cleaning the clothes and white clothes, as well as employees¡¯uniform and customers'clothes

Provide laundry for common clothes, and the store image is relatively poor.

Can clean various types of clothes, and the store image is relatively good.

Service contents

Provide dry cleaning and wet cleaning services

Provide professional dry cleaning and wet cleaning services

A few stores can provide dry cleaning and wet cleaning services

Provide professional dry cleaning and wet cleaning services

Equipment

Equipped with several heavy-duty industrial washers, dry cleaning machines and auxiliary equipment, but the equipment usually has low configuration.

Equipped with heavy-duty industrial washers and high standard dry cleaning machines as well as various kinds of auxiliary equipment

Home washers, and manually operated dry cleaning machines, if any

Most stores are equipped with technically advanced dry cleaning machines, several auxiliary equipment such as finishing boards, spotting boards and packaging machines, etc.

Service level

The factory does not deal with the customers directly. The store receptionists usually have low professional quality, and the clothes turnover time is relatively long, which is not easy to have value-added services.

The laundry room does not directly deal with the customers, and the maids pick up and deliver the clothes.

Family operation, and the service reception levels differ, the safety of the clothes is low and the complaints are hard to handle.

Most stores have standard training, unified service code, and the technical level and quality of the employees is enhanced. The safety of the clothes and the complaints are relatively easy to be solved.

Location

Cover a large are, usually in the suburbs

Cover a relatively large area, usually within the hotels and restaurants.

Cover a small area, usually in the neighborhood.

Cover a proper area, usually within mature business zones

Laundry technology

Since the teacher teaches the apprentice the methods, the laundry technological propagation is limited and the technical levels differ.

Relatively good laundry technique

Depend on experience accumulation, and the overall laundry technique is poor

Depend on systematic training, usually have comprehensive and mature laundry technique

Investment scale

Large investment scale, over RMB 1 million.

Around RMB 1 million investment

Less than RMB 10,000 investment

Several hundred thousand investment

   From the above comparison, we can see that the laundry service locations can be classified into three grades:
  1¡¢ Laundry rooms in high-grade hotels and restaurants that serve high-end customers: small number, narrow service channel, relatively good technique, and relatively high laundry price (for example, a suit costs around RMB 40 ¨C50);
  2¡¢ Laundry stores that serve high and medium income groups: comprehensive equipment, small number, wide service target groups, comprehensive technique, and moderate laundry price (for example, a suit costs RMB 18 ¨C 35);
  3¡¢ Private laundry stores and laundry factories that serve common consumers: large number, non-standard, lack of laundry technique, wide service targets, and relatively low laundry price (for example, a suit costs RMB 5 ¨C 12).
   From the distribution of laundry stores, at present, there are around 1 million laundry-related stores (including laundry stores and laundry pickup centers) in China, but they are distributed unevenly with more stores in large cities such as Beijing, Shanghai, Tianjin and Guangzhou. There are around 5,000 laundry-related stores in Beijing; while there are around 2,000 in Xianju City in Zhejiang Province. The reason is the role played by economic level, consumption awareness and market guiding. Taking Beijing as an example, the laundry industry in Beijing is among the best in China. Among the 5,000 laundry-related stores in Beijing, only 20% can provide true dry cleaning and wet cleaning services, where private laundry stores account for over 50%. This shows that the number of laundry stores and the scope of services cannot meet the ever-increasing laundry need.
   For equipment, among the total 20,000 laundry-related equipment sets in China, 90% or more are transfer machines (including hotels and restaurants set up at the end of 1980's), while hotels and restaurants established after the 1990's usually adopt dry-to-dry machines. Among the 10% dry-to-dry machines, only several thousand are internationally advanced ones that have the performance approaching FORNET machines mostly made in Italy and Germany. The main reason for the diversified laundry equipment is the price. People are having higher requirements for laundry services, and most of the dry cleaning stores need to upgrade their old machines.
   For employee quality, at present, there are only a few million employees in laundry industry in China. Less than 10% of the employees get technical training or professional rotation, while most of the employees are migrant workers from the rural areas. They learn while working, and the overall quality is poor. This is the current condition of the laundry employees.
   From the analysis of laundry needs and the current condition of laundry industry, we can see that currently, the laundry industry in China still lags behind the market demand. It has become the laundry choice of most people to reduce daily housework and seek for professional laundry service. Although laundry industry has gained tremendous development in recent years, and laundry market in some areas (such as Beijing) develops fast and largely satisfies the diversified consumers, from the nationwide analysis, the industry development as a whole is behind the growth of market demand, and the technical level is relatively low, and most of the laundry stores still have simple equipment and rough technology, especially the laundry demand of high and medium income groups is far from satisfaction.
   The diversification of demands determines that all industries must be more specialized. Laundry industry is in the stage of preliminary specialization. Laundry factory benefits from the large scale, but with the increase of transport charge and store rent, the laundry pickup centers have increasing cost, and shrinking profit margin, which makes the laundry pickup centers hard to survive; with the relatively long pickup and delivery time, few value-added services provided to the customers, this traditional laundry industry is being washed out of the history stage.
   From the evolution of the market demand, we can predict the development trend of laundry industry: private laundry stores can get the recognition from a large number of common customers by adding and upgrading necessary machines, improving the laundry technique and offering competitive price; professional laundry stores depend on good store image, advanced machines and professional services, and will attract high and medium income groups that pursue quality of life (which has be proved by the rapid growth of laundry stores like FORNET). For the demand growth, professional laundry stores have better growing prospect, more powerful competitive edge and longer operation period.

   We need to make choice every day. Investing in laundry stores means to choose -
 ¡¤ After a one-off investment, there is no need for follow-up capital support. It is a project that has long operation period, high stable profitability and sustainable development;
 ¡¤ Project with no debt dispute; it has cash transaction, and stable income;
 ¡¤ No risk to violate the laws or social morality; project that is not the key supervision target of the administration department;
 ¡¤ Project with small operation risk, low management cost and strong adaptability.
   Laundry stores have such significant features, but the market is changing, and competition and business traps are everywhere. Currently, in terms of configuration of dry cleaning equipment, there are largely two modes of laundry stores in the numerous Chinese laundry brands (adopting those adopt transfer machines and those adopt dry-to-dry environmentally friendly machines). For new comers to laundry industry, the selection of the mode of the dry cleaning equipment will be a critical factor to determine the outcome of the laundry store operation. Decision should not be made rashly merely based on price difference.
 ¡¤ Generally, the average price of the dry-to-dry environmentally friendly machines on the market is five to ten times of the price of transfer machines; the appearances of both are bright and marvelous, but the quality and performance of the equipment differ greatly. Transfer machines cannot guarantee to distill the solvent each time the clothes are cleaned, and clothes of different colors can only be cleaned in the same dry cleaning solvent; while dry-to-dry environmentally friendly machines can solve the problem perfectly.
 ¡¤ Most of the transfer environmentally friendly machines in Chinese market use perc as the solvent, and there is also dry-to-dry HYD machine for sale that has relatively high price hardly affordable for ordinary investors. Compared with transfer perc or HYD machines, dry-to-dry machines only consume 1/10 of the solvent consumed by transfer machines.
 ¡¤ Since transfer machines pollute the environment severely, they were washed out by developed countries in Europe long ago. With the enhancement of the awareness of environmental protection and the treatment and reification of environment pollutions in China, some large cities have banned the establishment and add of transfer machines.
 ¡¤ At present, the dry-to-dry environmentally friendly machines in Chinese market depend on import, such as Firbimatic, Union, and REALSTAR, etc.
   Franchise operation is being adopted by more and more industries. It has been a common view of people in laundry industry and investors to adopt franchise operation. For franchise enterprises, they can get faster expansion speed and mass benefit; for the franchisees, if they choose mature franchise headquarters, they can have stronger competitive edge, and get higher possibility for success. From the rapid growth of FORNET laundry system, you can feel the development momentum of laundry franchise operation.
   The laundry industry develops rapidly, the laundry stores get more attention from people, and the franchisees transform from family business to professional service. All these changes prove that laundry industry is gradually stepping toward standardization, professionalism and detailed classification. The laundry franchise operation is taking the lead step by step; laundry stores are becoming the housework aid indispensable in people's life; and the investors can certainly get more sustainable, more stable and larger benefit.
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