Pushing into New Markets: The Master Franchise System

In addition to conventional franchise systems in which a franchisor cedes his business model, his operational structures and his offer to various regionally occurring franchisees under licensing, meanwhile, another variant of franchising has prevailed: the so-called master franchising. Your real estate agency Engel & Völkers explains the term, mentions the essential differences to conventional franchising and outlines the prerequisites for building a master franchise system.

Master franchising as an international expansion model

In most cases, the concept of master franchising is used by franchisees whose strategy has already proven itself in their country of origin and who now want to penetrate into the markets of other regions, often other countries. Since there may be different economic, cultural or political conditions in the target nation than in the home country, it is important for the franchisor to find out whether and how successfully their own system can prevail there. For this purpose, the master franchisee comes into action: He acquires the same license as the franchisees in the conventional system, which now extends to the entire target area and thus covers a much larger area than the regional license of the classic franchisee. After a strategic planning phase, the master franchisee opens one or a few branches of the brand in the destination country in order to test their marketability. Even the master franchisee, like the normal franchisee, is responsible for the economic success of his company, so he is not in any direct dependent employment relationship with the franchisor in the home country. Although bound by certain licensor standards, he enjoys extended freedom in adapting his strategy to the target market compared to the traditional franchisee. Nevertheless, there are framework requirements, which include, for example, a uniform appearance of the brand within the meaning of the CI, or even a financial objective for the first years. If his pilot companies also prove their worth in practice, the next step for the master franchisee is a new function ...

From franchisee to franchisor in master franchising

In order to fully implement the franchise system, which has been successfully adapted to the target market, the master franchisee assumes the role of the national franchisor and in turn enters into license agreements with so-called sub-franchisees. These are ultimately comparable to the franchisee in the classical sense, as they adopt the previously proven target market strategy and transfer it as independent entrepreneurs to their locally licensed franchise operation. This way, the expanding franchise label will reach a rapidly growing territorial reach, while the investment totals required to set up the new branches will be shared among the various franchisees. The master franchisor also benefits effectively from this approach as it outsources the adaptation to the target market and thus saves costs. Finally, both master and sub-franchisees benefit from the prestige effects and elaborated strategies of the next higher franchise level, which - as a core advantage of franchising in general - greatly facilitate market entry compared to traditional self-employment.

The requirement for an ambitious master franchisee

If you want to be successful as a master franchisee in the real estate franchise, you should have a number of qualifications and competences. First of all, there are the requirements that a traditional franchisee should have from the start: the ability to run your own business independently, stay in control, being disciplined and goal oriented is essential. Knowledge of leadership, adequate risk-taking and adaptability in the context of changing market conditions also contribute significantly to the success of a franchise operation.

In addition, there are the demands on a master franchisee who must also fulfill franchisor functions: Ideally, a master franchisee in the destination country of the expansion is already culturally rooted and knows the conditions of the corresponding market. This makes it easier to adapt the business model to the national framework conditions. As soon as licensing deals are made with the first sub-franchisees, additional skills are needed: The master franchisee must be able to guide the sub-franchisees in establishing their franchise operations and to provide them with the necessary marketplace knowledge he previously established in the pilot companies. Continuous support of the sub-franchisees, which includes advanced training and the updating of the franchise strategy, requires advanced communication skills.

Ultimately, the amount of investment required adds up to a further requirement: The master franchisee must have sufficient financial resources to build the master franchise system, moving at least half a million euros.