Organic food franchises are undoubtedly a very profitable niche market in the franchise industry. According to the research done by OTA Manufacturer Survey between 2006 and 2007, organic food was the leading segment of organic products being sold in the United States, with consumer sales reaching up to $16.7 million, constituting 95% of sales of all organic products (Barkoff, Selden, & American Bar Association, 2008). The ever increasing consumer demand for organic foods has motivated franchisers to capitalize on the opportunity to establish organic food franchises ranging from retail franchises to pizza franchises. Because of the nutritional and health benefits of organic food products, consumers are willing to buy them expensively owing to their long-term benefits (Canavari, & Olson, 2007). Experts have predicted future significant growths and profitability in this new industry, which is good news for people who have interest in investing in organic food franchises. This paper discusses the advantages and disadvantages of franchise agreements, in addition to my recommendation on whether Liz should invest in the organic food franchise or open her own organic food shop.
Persons who are interested in venturing into any franchise business, need carefully to consider the advantages and disadvantages of the franchise agreement contract prior to signing it. Individual franchise businesses depend on the decisions of the franchise company for instance, the franchise company can decide to add clauses or alter certain terms to meet the ever changing needs of the business (Barkoff, Selden, & American Bar Association, 2008). The advantage is that in case the company passes a policy that affects individual franchises negatively, the owners of the franchises have power in their large numbers to compel the franchise company to hold discussions of the change before it is effected (Barkoff, Selden, & American Bar Association, 2008). Another advantage is the fact that a franchise agreement enables the individual owners of franchises to access marketing skills, products and the trademarked business logo of the franchise company. Signing the agreement permits the owner of a franchise business to legally utilize the trademarked name and logo of the franchised business when writing a business plan (Barkoff, Selden, & American Bar Association, 2008).
It is important to note that franchise companies engage in sole sourcing i.e. they have their own suppliers. The franchise agreement dictates that all the individual franchise businesses have to purchase all the supplies according to the company’s guidelines. This means that when the prices of the supplies rise, individual owners of franchise businesses have to part with extra cash because they can only buy from the company’s suppliers (Barkoff, Selden, & American Bar Association, 2008). In addition, when the franchise company makes major changes like altering the company’s look, the individual franchise businesses must abide by the changes and remodel their businesses. This unanticipated investment can be taxing to a franchise owner (Barkoff, Selden, & American Bar Association, 2008).
With regard to whether Liz should invest in the organic food franchise, or open her own organic food shop, I think she should open her own food shop if she has adequate capital. This is because of the numerous disadvantages associated with signing a franchise contract. For instance in the case presented, it is a requirement for every franchise owner to contribute 1.5% of the gross revenue for advertising the Foods of Reality Company nationally. Not every franchisee has that kind of money. In addition, the fact that franchise company supplies all the inventories of the individual franchise businesses means that Liz cannot buy the supplies elsewhere even if she gets them cheaply, implying that if the prices of the supplies are increased, she has to part with more money (Barkoff, Selden, & American Bar Association, 2008).
In conclusion, organic food products have high demand among consumers for their long-term health benefits (Canavari, & Olson, 2007). Organic food businesses are very profitable niche market with promising significant growths in the future. I challenge investors to take advantage of this opportunity to establish organic food businesses because of the guaranteed success.