The fast-food franchise is rapidly gaining popularity in Nigeria with the rise of indigenous fast-food restaurant chains as Chicken Republic, Tantalizers, and Mr. Biggs. Alongside foreign restaurant chains as Ostrich Bakery, Kentucky Fried Chicken, Dominos Pizzas, Cold Stone Creamy granting licenses to regional restaurants to operate using its business model in Nigeria.
Food franchising is a business arrangement whereby a business owner uses a firm’s existing business model to grow a business. It involves two parties; a franchisor and a franchisee. The franchisee pays a fee to purchases the franchisor’s existing business intellectual property rights such as trademarks, goodwill, proprietary knowledge under a franchise agreement.
Food franchising is an important tool for consistent quality, brand recognition, international experience, job creation, technology transfer, and enhancements of small and medium enterprises.
The franchise as a business model is a great business option for entrepreneurs with no original business idea but with excellent managerial skills. This business model comes with numerous advantages as it reduces business risks, helps cultivates managerial skills, market expansions, and speedy business growth as opposed to a startup. Nevertheless, the high cost of operation of this business model as profits are expended on payment of royalties to the franchisor is a disadvantage of this business model.
Investing and owning a fast-food franchise in Nigeria can be a lucrative venture for entrepreneurs. Nevertheless, most business owners are clueless about how to commence a fast-food franchise.
The following steps below is a guide on how to commence a fast-food franchise in Nigeria;
In commencing any form of business venture, research is important. Researching the fast-food franchise industry in Nigeria aids the entrepreneur to understand how things work. It equips the entrepreneur with information about the demands of setting up a fast-food franchise business.
This information includes the federal and state laws governing the industry, the licenses, and permits required in setting up the franchise. Studying the franchisor’s brand is important as information concerning the product and intellectual property rights to be purchased should be obtained. Research also provides the entrepreneur with relevant information concerning the franchisor; the support which the franchisor provides to an intending franchisee.
Also, research helps in projecting a cost for setting up the business; these costs include royalties and any other fee which the franchisor demands from the intending franchisee. Researching other fast-food franchises operating with the intending franchisor brand also helps the entrepreneur gather relevant information. This information will educate the entrepreneur as to the nature of the agreements between the franchisor and intending franchisees.
Researching is key and the first step to being taken by the entrepreneur in establishing a fast-food franchise.
The next step to take after carrying out research is to make an application to the prospective fast-food franchisors. The franchisor would in turn alongside its application form, provide the entrepreneur with information concerning its franchise. This information could be provided in form of brochures, video materials, etc.
The information provided by the franchisor can be used as a guide in filling the application form. Most often, the application form provided by the franchisor requires information regarding the entrepreneur’s business interests, history, experience, education, etc. This application form is used by the franchisor to evaluate the entrepreneur as to whether he is a good fit for the intending franchise.
Most often, the fast-food franchise provides the entrepreneur with a Franchise Disclosure Document. This document outlines comprehensive information about the roles of the franchisor and franchisee involved in a franchise. The document also contains the royalty fee, the manner of payment of the royalty fee, etc. Also, you will find the manner of business training and equipment to be covered by the royalty fee.
The document also provides information on the nature of intellectual property transfer. This document helps the franchisee to make an informed decision concerning the intending franchise. If the application is approved, the parties can enter into a franchise agreement. Here the franchisee is advised to seek the counsel of a lawyer before signing the agreement.
The next step is funding the franchise. This is a crucial step as without funding, the franchise cannot commence. Often, a franchisor as part of its terms or obligations in the franchise agreements may assist the franchisor with funding. This funding may be repaid in form of royalties or a certain percentage of profit is paid to the franchisor until the loan is paid off.
Franchisors who provide funding often directs business operations for some time depending on the terms of the franchise agreement. Whereas the franchisor fails to assist with funding, the franchisee may resort to other forms of funding like personal savings of the entrepreneur, bank loans, venture capital, etc.
Funding is important as it is used to cover the working capital costs required to commence the franchise. These costs include buying inventory, obtaining permits rents, insurance, equipment, and machinery, etc. Nevertheless, fast food franchisors who do not provide funding often guide how to obtain funding from other sources.
Obtaining Legal And Regulatory Permits
The entrepreneur cannot commence a franchise without obtaining the necessary regulatory and legal permits. These permits are based on the legal framework in place around the franchises and fast-food businesses. In Nigeria, there is no specific legal framework governing franchise businesses. Nevertheless, certain pieces of legislation apply to fast-food franchises.
In most state jurisdictions, the fast-food operators are expected to obtain a permit from the state ministry of health to ensure compliance with basic health and safety guidelines within their immediate environment. Also, NAFDAC requires fast-food operators who process and sell food in large quantities to obtain General Hygiene Practice before commencing operations.
In Lagos state, additional permits include a food permit, television license, private entertainment and merriment permit, and private car park permit. These permits are to be obtained from the Local Government in which the restaurant is located. The applicable fee in obtaining these permits are subject to assessment by the local government.
Other permits and licenses include Tax Clearance Certificate, Business Registration Certificate, Intellectual Property Transfer Certification, etc. However, the franchisee may not obtain some of these permits as they are already obtained by the franchisor. He may use the franchisor permits for a fee as contained in the Franchise Agreement.
Also, if there is a transfer of technology between the parties, such technology transfer must be registered with NOTAP. Nevertheless, it should be noted that where the franchise is between two parties in different countries, the franchisee is expected to obtain permits pertinent to his country.
These steps are not exhaustive but they lay the foundation for the commencement of a fast-food franchise in Nigeria. Do you want to venture into a fast-food franchise in Nigeria? Are you already a franchise owner? We will like to hear your thoughts in the comments.
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