Franchising in the F&B Sector: An A-Z Guide

Franchising is becoming a popular trend in the F&B (Food and Beverage) sector in Vietnam. This model allows businesses to scale quickly, while also providing the opportunity for investors to participate in a proven successful business system. This article will provide a detailed guide to franchising in the F&B sector.

Overview of franchising in the F&B sector

Franchising in the F&B sector is a form of business cooperation in which the franchisor allows the franchisee to use the brand, business model, formula, know-how and other intellectual property rights to sell food products or services. In return, the franchisee must pay an initial franchise fee and periodic royalty fees to the franchisor.

F&B franchising brings many benefits to both the franchisor and the franchisee. Franchisors can expand their business network quickly without investing too much capital. Franchisees can take advantage of an established brand, minimize business risks and receive training, marketing and management support.

Conditions for franchising in the E&B sector

Conditions of the franchisor:

Pursuant to Article 5 of Decree 35/2006/ND-CP amended by Article 8 of Decree 08/2016/ND-CP, the franchisor needs to meet the following conditions:

• Traders are allowed to grant commercial rights when the business system intended to be used for franchising has been in operation for at least 1 year;
• Register commercial franchising activities before franchising (in cases where registration is required)

Conditions of the franchisee:

Currently, regulations on conditions for franchisees have been abolished by Article 9 of Decree 08/2018/ND-CP. However, based on the definition of franchising, it can be affirmed that the franchisee must be a trader.

Franchise registration process in the F&B sector

According to the provisions of Article 19 and Article 20 of Decree 35/2006/ND-CP guided by Circular 09/2006/TT-BTM, commercial franchise registration is carried out as follows:

Step 1: Prepare documents

Profile includes:

• Application for registration of commercial franchise activities according to form MD-1, Appendix II of this Circular;
• Franchise brochure;
• Business registration certificate or Investment certificate for overseas commercial franchises; Business registration certificate or equivalent document of foreign trader certified by the competent authority where the foreign trader is established in case of commercial franchise from abroad to Vietnam;
• Certificate of protection of industrial property rights in Vietnam or abroad in case of transfer of rights to use industrial property objects that have been granted a certificate of protection;
• Documents proving the original franchisor’s approval to sub-franchise in case the trader registers franchising activities as a secondary franchisor.

Step 2: Submit profile

• Submit application for registration of commercial franchise activities to the Ministry of Industry and Trade.
• When receiving applications for registration of commercial franchise activities, the registration agency must record a receipt.

Step 3: Processing documents and registering franchises

• For incomplete and invalid documents, within a maximum of 02 working days from the date of receipt, the registration agency must notify in writing.
• Traders registering for commercial franchise activities have the right to request the registration agency to clearly explain the additional requirements and complete the dossier.
• Within 05 working days from the date of receipt of complete and valid documents, the registration agency is responsible for registering the trader’s franchise activities in the Franchise Activity Register and notifying the trader in writing.

Note:

According to Clause 2, Article 3 of Decree 120/2011/ND-CP stipulating the addition of Article 17a after Article 17 of Decree 35/2006/ND-CP, cases that do not require franchise registration include:

• Domestic franchising.
• Franchising from Vietnam to foreign countries.

For cases that do not require franchise registration, reporting to the Department of Industry and Trade must be implemented.

Risks and ways to avoid them when franchising in the F&B sector

Below are some common risks and ways to avoid them in franchising in the F&B sector that customers need to pay attention to to ensure their rights:

Legal risks:

Risk:

• The franchisor does not have legal ownership of the brand or business system.
• The franchise contract is unclear and lacks provisions to protect the rights of the franchisee.

Prevention:

• Carefully check the franchisor’s legal documents, ensuring they have full intellectual property rights and franchise rights.
• Carefully read and understand the terms of the franchise contract, especially the terms on the rights and obligations of each party, franchise fees, term, and contract termination conditions.

Dependent risks:

• Risk: The franchise buyer’s investment will be used to “bet” on their marketing team. If the marketing team does not do well, the buyer loses money and the store. Meanwhile, the franchisor does not lose anything, one store closes, several new ones open.
• Prevention: Customers need to evaluate the skills and experience of the franchisor’s marketing team, and ask them to provide commitments on marketing performance.

Chain effect risks:

• Risk: Chain effect risk is understood as when one establishment encounters a problem, leading to customer dissatisfaction, which can greatly affect other establishments within the same brand. If the parent brand has a media crisis or just another franchise in the chain has a “scandal”, the whole chain will be affected by negative effects.
• Prevention: Customers need to choose reputable brands and good quality management systems.

Competitive risks:

• Risk: The franchisor may allow too many competitors to operate in the same area.
• Prevention: Customers need to negotiate and have exclusivity clauses regarding the operating area in the franchise contract.

Consulting services and franchise guidance in the F&B sector

Long Phan provides consulting services and franchise guidance in the F&B sector, including:

• Consulting on franchise conditions;
• Consulting on risks and prevention measures in franchising;
• Drafting and negotiating franchise contracts;
• Consulting and guidance on preparing documents and franchise registration procedures;
• Consulting on financial, operational and risk management issues in franchising;
• Consulting and resolving disputes arising during contract implementation;
• Consulting and answering other issues related to franchising.

Franchising is a good opportunity for businesses to expand their business activities in the F&B sector. However, to achieve success, customers need to master the conditions, finance and operations related to franchising. Hopefully this article has provided customers with useful information. If you have any questions, please contact the hotline: 0906735386 for advice and support.