One form of franchising that you might have seen, but did not recognize, is the product distribution franchise. In this model, the franchisor maintains the supply chain for producing the products and only sends finished products to franchisees for sale to customers. Through this franchising relationship, a franchisor can protect its brand.
Differences Between a Distribution Agreement and a Product Distribution Franchise
A product distribution franchise sounds like an ordinary distribution agreement. However, in a distribution agreement, the distributor has its own name. In a product distribution franchise, the franchisee uses the franchisor’s name and logo, so that, by all appearances, the franchisor is the distributor.
For example, a beverage distributor called Al’s Beverage Company might be the exclusive or non-exclusive distributor for Buzz Soda in that market. Alternatively, Buzz Soda might set up a product distribution franchise in the market and use Buzz Soda (the franchisee) to distribute the product.
How Does a Product Distribution Franchise Protect a Brand?
A product distribution franchise protects your brand in several ways:
- Centralized supply chain: Every franchisee distributes the same product from the franchisor’s supply chain. Thus, the products are uniform in quality and you do not need to be concerned about franchisee manufacturing substandard products.
- No disclosure of proprietary information: Since the franchisees are supplied with your products, they do not need to know anything about the product supply chain including the identity of the manufacturers, the manufacturing process used to make the products or the product’s ingredients.
- Limits exposure to industrial espionage: With computer hacking and other data intrusion such as phishing attacks or intercepting data on the move, there is a risk of loss every time the proprietary information is stored or transmitted. With fewer copies and less access, the industrial spies have fewer opportunities to steal the information.
Examples of Businesses that Use Product Distribution Franchises
Product distribution franchises benefit franchisors that want strong control over the use of its trademarks and products and little involvement in the franchisee’s day-to-day operations. For example, soft drink distributors and auto manufacturers set up product distribution franchises in each market to be serviced. As demand fluctuates, the franchisor can scale the franchises granted to meet the demand.
Benefits of Being a Product Distribution Franchisee
Franchisees also realize the benefits of the product distribution franchise model. With no responsibility for the supply chain, the franchisee does not need to test the quality of its goods or services to comply with the franchise agreement. Moreover, any difficulties with third-party vendors can be handled directly by the franchisor rather than falling to the franchisee that might have less bargaining power.
Whether you are a prospective franchisee or an experienced franchisor, contact us to discuss your product distribution franchising transaction.