Yes. From a purchasing of goods and service viewpoint, in most cases we have worked out it's best for a franchisee to deal directly with a supplier. This is usually under terms that we have negotiated for the benefit of all franchisees that are equal or better to what they could obtain through other buying groups or by direct negotiation. Terms may mean price and/or account payment arrangements
Are franchisees required to purchase from the franchisor?
Sometimes. In most cases the franchisor does not supply to franchisees directly.
From July 2009 the main goods and services purchased directly from the franchisor are restricted to items that contain our trademarks and logos etc. These include changes to artwork for printed materials, some printed materials (eg price lists) where we can obtain significant cost savings through bulk purchase, other items where minimum purchase requirements mean we need to purchase in bulk (eg printed bags). Over the past 5 years such purchases have represented less than 4% of the franchisor's total income and this is decreasing each year as we outsource more.
Are franchisees required to purchase from other suppliers?
No. The franchisee is not required to purchase from specific suppliers if they can obtain the same items of the same standard or specifications from other suppliers.
For retail stock and most hire equipment items, Party Plus franchisees purchase from suppliers that are completely independent to the franchisor. Like most franchise systems, we have specified "core items" that all stores must hold. These are specified by brand, size, specifications etc. We have suppliers in place that offer attractive supply terms and conditions as well as continuity of supply of these items. Most stores then add to this range according to the demands of their customers in the local area.
Why isn't the franchisor more directly involved in the supply of goods and services?
Answer #1 - to avoid potential for conflict of interest and perceptions of "double-dipping", and to ensure transparency of pricing.
Answer #2 - to avoid operating a second business unit (wholesale supply) in addition to the franchise business. That would divert resources and attention from the primary franchise business activity.
We've seen both of these models operate in other franchise systems. Some have been successful. Many have either failed or caused significant problems and disputes.
For Party Plus, we prefer to be the franchise experts and let others be the wholesale experts.
Are larger equipment items owned by the franchisee?
Based upon driving franchisee profits, our broad rule of thumb is that it's often better to control large assets than to own them outright. That can mean more working capital is available to gorw the business.
For most franchisees, larger and specialty equipment is provided by strategic service providers. The provider is negotiated and approved by the franchisor, and the local store acts as a booking agent and receives a commission.
These providers are external businesses that usually specialise in a single line of equipment - eg we may approve a marquee specialist provider, as opposed to a marquee provider that also does lighting, sound equipment, catering and dance floors. Our strategic service providers are required to not compete with Party Plus, have appropriate insurances and indemnities in place to cover our franchisees and their customers, follow our proven systems and procedures, and have proven their reliability over a number of years.
We actively work with franchisees on an ongoing basis to see how they can best meet their profitability goals. We jointly examine availability of alternate supply arrangements using commissions etc for larger hire equipment items such as marquees, jukeboxes, cocktail machines, and we compare to see whether purchase of equipment is feasible and cost effective. For example, while a particular item like a jukebox may show a high usage and turnover, the costs involved in financing, additional wages for delivery, set-up, late night call out fees, maintenance, music royalties, insurance, rapid depreciation and obsolescence in an increasing MP3 marketplace etc may limit the profit upside. (note: this is a hypothetical example only)
