Opening a Franchise Business in Hong Kong

Opening a business from scratch is not easy and new entrepreneurs often consider beginning as a franchisee of a well-known franchise brand. But how exactly does a franchise work? What are the roles of franchisor and the advantages of being a franchisee? Read on if you wish to learn more about the franchise business model.

What is a Franchise, Franchisor and Franchisee?

There are more franchises around us in Hong Kong than you would think - whether it’s the McDonald’s where you grab your breakfast, the 7-Eleven where you get your newspaper and late night snack, or the 24-hour self-service laundromat that you pay your weekly visit. These well-known international or homegrown franchise brands (the franchisor) sell the right to open stores and sell products or services using its brand, expertise and intellectual property. By paying an initial start-up fee, an annual fee and a percentage of the branch’s profits, people who are interested can purchase these rights. These people thus become the franchisee and the branch business they own is called a franchise.:

Why Should I Become a Franchisee?

By becoming a franchisee, you are forming a business partnership with the franchisor through which you can build a business in a fast, low capital way:
  1. Let’s Talk Money
    As an entrepreneur with little experience, you might not have a lot of capital. The costs of opening a franchise are lower than starting your company from the ground up.
  2. You Get All the Help You Need
    As a franchisee, you can receive timely assistance and professional advice from the franchisor, who has years of experience hiring and training staff, setting up shops, sourcing the supply and more.
  3. Brand Recognition
    Everyone knows the names of KFC, Subway, Pizza Hut and they trust and patronize those brands because they are familiar with them and associate them with an image of quality and certain products. Being the franchisee, you can enjoy the same recognition and support.
  4. Play Safe
    You can follow an existing, proven business model established by the franchisor. This can help you to lower the risks which are often involved in the initial stage where businesses experiment with what works and what doesn’t. As a franchisee, you can also obtain experience as you grow your business and learn the best practice of the industry. Of course, employee training will be provided by the franchisor. Such training programs oftentimes include employee policies and specific procedures about maintaining smooth business operations.

What Should I Consider When Buying a Franchise Business?

Franchise fee
The franchisor has invested its own time and money into creating a successful business system and will provide ongoing support to the franchisee. In return, you, as the franchisee, have to pay a fee for using that brand and operating system.
Length of the franchise agreement
As a business owner, you are probably thinking of doing this in the long-term and you would like your business to last. Therefore, many franchise agreements last five to 10 years, and terms of 10 to 20 years are not uncommon. While you may prefer a shorter term for your initial agreement, you should make sure your contract lasts long enough for you to recoup your investment.
Other costs and fees
Apart from the initial franchise fee that you have to pay when you first become the franchisee, there are usually some other ongoing franchise payments that you will have to make to the franchisor within the agreement period. These costs could include monthly or annual fees based on your sales, and costs needed for franchise advertising.
Renewal, termination and resale policies
Plans sometimes change and so it’s important to figure out the conditions related to renewal and termination policies before you sign the agreement. These policies determine your ability to choose how long you continue with the franchise and the fee required for early termination and sale of the franchise.
Popular Franchises in Hong Kong
It is almost impossible to separate our lives from franchises, whether we are speaking of renowned international franchise brands or home-grown brands. So, what kind of franchises are there in Hong Kong? According to Hong Kong Franchise Association’s estimates, around 43% of franchises in Hong Kong are in the catering business, 37% in services and 20% in retailing. Some common ones include:
Laundry and dry cleaning
Since the first self-service laundromat opened in Hong Kong in 2014 and there has been a boom since.
Education
To give their children a head start in Hong Kong’s competitive environment, many parents would arrange after-school classes for their kids. If you are passionate about helping children and young people with their studies or developing their creativity, this is perfect for you.
Food and Beverage
It would be hard to go around Hong Kong without coming across a bubble tea, fast food or coffee franchise. If food and coffee are where your heart is, look no further than Lassana, which has over 8 years of experience growing coffee shops in the competitive catering market in Hong Kong
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