Making sense of the Manchise model

Making sense of the Manchise model

Manchising is a unique business model that’s well suited to hotel owners who are looking for more flexibility or an independent hotelier seeking the support of a well-known brand. Christian Salloum, founder and managing director of BrandPortunity, guides us through this brand management concept and outlines the pros and cons for investors.

The term manchise has evolved and been redefined and restructured by the global chains in an effort to extend their brand’s footprint in competitive and more informed marketplaces. The Home Inns chain has 1,580 hotels in its portfolio, 847 of which are franchised and managed, while China Lodging recently added 43 new manchised hotels and 35 new leased hotels to its collection. Ten percent of Oyo’s network, which comprises more than 3,500 hotels, already operate as manchises. Furthermore, several global hotel chains are considering manchising arrangements for their brands, like Fairfield and Four Points in the case of Marriott.

The manchised model can offer a solution and create a more efficient relationship between owners and brands by combining a franchising agreement with the option of a management contract, which an experienced independent third-party operator will uphold.

Manchising Model in F&B
A manchise offers new opportunities for food and beverage brand owners as they look to expand and explore more markets. The opportunities will allow the investors to have greater control of both the asset and the business and consequently the absolute right of the operating profit.

The model is being used within the food and beverage sector, namely retail, where the franchisor acts as a manchiser of their brand and supports the franchisee with a win-win solution. Instead of hiring a brand manager, the franchisor and/or their team can play the role of the brand manager or guardian in a specific market. They can also assign a third-party operator or expert food and beverage consultant with a solid background in brand operations and development to play the role of manchiser, especially if the brand is looking to enter a new market. Upon reaching a specified count or business maturity, the brand converts the manchise into a franchise agreement; this could be a short-term agreement for small brands looking to expand aggressively.

Benefits of the franchising model
Manchising in the food and beverage sector is very beneficial and supportive to the investor and/or franchisee, particularly if the new successful brand is looking to expand out of its country of origin and where the new market has high potential to scale the brand.

Management: Investors or franchisees are often intrigued by the concept of having a brand (or franchisor) manage their property or successful food and beverage brands so they can avoid paying the franchise fee. They can instead utilize the skills to support the pre- and post opening phases, recruitment and training, thereby leveraging brand resources and distribution channels more effectively.

Menu Development: Menu development and other operational support is critical, in which the manchiser is more knowledgeable and experienced. The investor may be new to the F&B world and, as such, a manchise agreement is the best option to launch the business and new brands. By doing this, the process and execution is more efficient.

Immediate results & return
A manchise agreement is a solution for several investors and franchisees seeking immediate results and return. However, if the owner (franchisor) elects to convert a manchise into a franchise agreement, a third-party manager is brought in to replace the brand manager (manchise person or brand). In this case, both the brand and owner win as the brand can maintain its distribution and royalty-fee stream, while the owner benefits from the uninterrupted brand affiliation and minimal costs to replace the manager.

Fast expansion: On the other hand, owners benefit from a manchise agreement by growing their brands at a faster pace, especially in the retail food and beverage sector (store counts, accessibility, revenue and profitability), as scalability of the concepts is easy to duplicate from one region to another. This will support the business brilliantly if the franchisee has a master franchise for the whole territory. It is well suited to budget and economy brands, and owners will have a greater say in day-to-day operations.

A new generation management strategy
In my opinion, the manchise agreement is a new generation management strategy for key international food and beverage retail businesses; it combines the features and benefits of the franchise model, in addition to the advantages of independent specialist management expertise.

Negotiating a manchise agreement
While negotiating a manchise agreement, it is important to discuss the material business points for the franchise agreement, including:
– Conditions to exercise conversion rights
– Terms of the franchise agreement
– Franchise fees and any other fees (royalties, new opening fees, etc.)
– Assessment of any possible improvement plan at the time of the conversion
– Approval of the third-party manager that will take the lead
– Impact on any financial contributions in case of key money, guarantees or possible joint ventures between both parties
Franchisors will most likely want the right to apply their current form of the franchise agreement at the time of the conversion, which is generally acceptable. Brands want uniformity in franchise agreements to maintain the quality of the brand, benefiting the entire system.

Manchise agreement structure
Finding the right structure to meet the investor’s objectives is important to the process and changing management should be a priority. Manchising can offer both parties advantages and should be part of the discussion when selecting a hotel manager or a brand manager within the F&B industry. Is it going to be a game changer for small successful homegrown food and beverage retailers looking to expand regionally and internationally? Will the manchising business model be beneficial and supportive to food and beverage brands? These are just a couple of questions to consider.

Christian Salloum
Managing Director
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