Intro to Franchising
Franchising is a popular method for expanding business. Through a licensing relationship a franchisor, or business owner, essentially sells a franchisee the rights to open a new business location. For instance, GNC has many franchise locations, all of which were sold to various franchisees across the country. Once the GNC franchisee purchases a franchise, they are granted the right to build their own location using preexisting systems, regulations, etc.
Franchising is an attractive business model for anyone new (or not) to the industry. Unlike an independent business, which requires growing from the ground up, a franchise comes with a pre-established, and usually successful, operational system. Through extensive training programs, franchisees learn all the ropes behind the business, eliminating the daunting trial and error process. Not to mention, a franchise comes with brand recognition is built right in.
FRANCHISING IS AN ATTRACTIVE BUSINESS MODEL FOR ANYONE NEW TO THE INDUSTRY.
Anyone looking to purchase a franchise will be given a Franchise Disclosure Document (FDD). It’s imperative that any franchisee fully understand the components and contents in any business’ FDD. Consisting of 23 different parts, the FDD, a legally mandated document, outlines different key pieces of information involved in franchise purchase. For instance, a Franchise Disclosure Document tells the interested franchisee more about the total fees and costs associated with purchasing the franchise of their choice.
The overall intention of the document is transparency. Both the company and franchisee need to be on the same wavelength in order for the purchase and future management of the business to run smoothly. Click here to see a more in-depth description and analysis of the Franchise Disclosure Document.
The Story Behind GNC Franchise
To come 8/8 evening.
Incorporation & Franchising Since 2003
Joseph Fortunato, Sole Director. President and Chief Executive Officer.
Thomas Dowd, Executive Vice President. Chief Merchandising Officer and General Manager.
Michael M. Nuzzo, Executive Vice President and Chief Financial Officer.
Gerald J. Stubenhofer, Senior Vice President, Chief Legal Officer and Secretary.
James E. McBride, Vice President Tax and Risk Management.
Bruce Pollock, Senior Director of Franchise Development.
Elizabeth Kitchen, Vice President, Domestic Franchising.
Ray Newton, Director of Franchise Stores.
The initial franchise fee for a GNC franchise, if given to a new franchisee, is $40,000. Once the Franchise Agreement is signed, the fee is considered fully earned and therefore nonrefundable. However, new franchisees should also consider that they must acquire inventory for the store for a fee of $65,000.
In Item 10 of the GNC FDD, the franchisor expresses that it may offer financing for inventory, equipment, signage, among other aspects. However, before a franchisee may request financing, they must be qualified to do so based off of creditworthiness. Depending on these results, the franchisor may choose to accept or refuse to provide financing. GNC may also finance any necessary equipment replacements or inventory.
Training & Assistance
The GNC training program consists of three phases, which all franchisees must complete to the franchisor’s satisfaction. If a franchisee fails to complete any phase of the program, they may be required to repeat the phase.
Phase I of the program requires 40 hours of training in a company-owned GNC store. This phase provides the franchisee with a real life idea of what their day-to-day would look like, owning a GNC location.
Phase II of the program consists of a five-day classroom training session. Franchisees are responsible for all costs of the training program. GNC also gives the franchisee an exam on the classroom material at the end of the program.
Phase III is a 7-day process at the new location.
Prospective franchisees are given the right to operate at a franchisor-approved location. The franchisee is also granted a protected territory within a certain radius from the public entrance of the store. However, the designated location may be located within a shopping mall and therefore the protected territory can vary. However, if the store is not within a mall, then the territory can vary according to demographic barriers, population density, etc.
Term of Agreement and Renewal
The franchise term for a GNC franchise begins on the store opening date and ends on the 10th anniversary of the store’s opening.
Restrictions on Sources of Products and Services
All franchisees must use only GNC prescribed or approved equipment, inventory, graphics, etc. If the franchisee wishes to sell any other product, they must receive written consent from the franchisor. However, GNC may approve or disapprove any requests as they wish. If the franchisor refuses to approve a product, it must be discontinued from the franchise.
The POS cash register used in the franchise location must be purchased directly from the GNC franchisor, as it is custom designed for GNC stores. Currently, the system costs approximately $4,250 and must be accompanied by a purchased computer and printer ($1,000-$2,000) from the franchisor’s approved vendor.
Inventory for the location must also be purchased from GNC’s General Nutrition Center Inventory Plan, attached to the Franchise Agreement. The GNC Plan-O-Gram also explicitly lays out where each product should be displayed in the store and the appropriate signage.
GNC will supervise construction of the store by a franchisor-approved contractor. The franchisee is expected to pay for the actual construction costs, including the wiring, ceiling and flooring materials, plumbing, among others.
While GNC may provide financial services, they are not obliged to do so in the agreement. However, should the franchisor decide to provide financial services, the franchisee may choose whether or not to take advantage of the opportunity.
Franchisees are given a table of obligations within Item 9 of the GNC FDD. For one, franchisees are obligated to select/develop the site and complete all pre-opening purchases. As mentioned earlier, franchisees are obligated to pay all fees in a timely manner.
Furthermore, franchisees are expected to complete all required training programs before they can open their franchise location. The new store must also meet all maintenance and appearance requirements prior to the first opening day.
Among the list of obligations are the franchisee’s advertising requirements.
At the end of 2012, GNC had a total of 3,829 locations, which was 168 more than the year start. Item 20 of the GNC FDD provides a table of which state has how many franchise locations.
Initial Investment Costs
|Name of Fee||Low||High|
|Initial Franchise Fee||$20,000||$40,000|
|Other Construction Costs||$35,000||$90,000|
|Initial Promotional Materials||$1,250||$1,250|
|Construction Handling Fee||$2,500||$2,500|
|Business and Worker’s Compensation Insurance||$700||$10,000|
|Miscellaneous Opening Costs||$3,000||$4,000|
|Additional Funds–3 months||$7,450||$23,450|