Franchising

There are many ways to expand one’s business, and for over a thousand companies in the country, franchising has been the way to go. Franchising has proved that profitable and time-tested systems could be shared through a business model that has so far converted hundreds of thousands of Filipinos into entrepreneurs.

But despite an industry success rate of 90 percent, a franchise business and its owners could never be immune to pitfalls that come with doing business with unknown partners. That was a lesson learned the hard way by Myra Soliman-Salvosa, president of Bonnie’s BBQ Grill, which operates eateries serving a signature barbeque dish. In a span of a year, Salvosa had to deal with two delinquent franchisees—her first ones—losing millions in unpaid inventory, lost business, and legal fees.

The route to franchising
Bonnie’s started as a small ihaw-ihaw stall in Tarlac City in 1997 with an initial capital of P500, managed by Salvosa’s younger sister, Bonnie. In September 2005, after putting their systems in place and going through the “whole process of learning by doing,” Bonnie’s became one of the most sought after dine-in stores in Tiendesitas, a shopping complex dedicated to Filipino products located in Pasig City. The company’s initial investment of almost P600,000 was recouped, rather easily, in just two months.

This gave them resources to open more stores, and in a span of one year, Bonnie’s was in Cash & Carry Mall in Makati City, Greenhills Shopping Center in San Juan, and in Tarlac City, where a dine-in store replaced the aging stall.

Overwhelmed with the positive customer feedback, coupled with all the good things she has heard about franchising, Salvosa was eventually convinced that this business model could be a means to expand her business. “We got into franchising because customers were inquiring about whether we were franchising,” she says.

Salvosa then sought the help of Francorp, a franchise development and consulting firm, to prepare the business for its new phase.

From streamlining the business to meet franchising standards to choosing franchisees, Francorp guided Salvosa in her new venture. A Francorp team dedicated to Bonnie’s helped her screen franchisees, know their financial and managerial capabilities, gauge their willingness to follow her system, and know whether they had the business sense to properly handle the brand.

The relationship sours
Among the many people who showed interest in Bonnie’s was a lady in her late 20s, who eventually became Bonnie’s first franchisee. This person was offered a space in Mandaluyong City’s EDSA Central, which she readily took even if its monthly rent was a hefty P200,000. The store opened in November 2008. “The store was very successful; it was always packed,” recalls Salvosa. “The food was good and affordable, and it was in a good location.”

Citing slow sales, the franchisee failed to pay Salvosa for the store inventory. By March 2009—or four months after opening the store—the franchisee’s debt to Salvosa had reached half a million pesos.Salvosa decided not to release any more stocks to the store unless the franchisee paid up. The latter then started to offer her own line of products, even while using the Bonnie’s brand.

“The first warning sign was when she wasn’t paying us anymore,” says Salvosa. Francorp then instructed Salvosa to bring down the sign and close the store. But before Salvosa could lift a finger, the franchisee was ready with another brand name.

“They willfully terminated the contract by serving their own barbeque,” says Salvosa, who then had no choice but to resort to legal measures: the National Bureau of Investigation says there was a violation of intellectual property rights, and Francorp’s lawyers say Salvosa could file a collection case. However, there is nothing in Philippine laws specific to fraud cases in the franchising industry.

“There’s no regulation, and there’s no list of good and bad franchisors,” Salvosa laments. She remembers the Trade Department publishing a half-page advertisement in a major newspaper informing the public of the very individual who “scammed” Salvosa, “pero hanggang doon na lang.” And if only to prevent scams from happening, Salvosa is for the passing of specific franchise regulatory laws.

Two years since she decided to stop running after her former franchisee, Salvosa says she is fulfilled in managing Bonnie’s more than ever. It’s not because she was able to forget, but because the failed franchise relationship made her realize that she and her business are not cut out for franchising.

“Franchising is not for me. I want a business where I’m only answerable to myself,” Salvosa says. “Every business owner wants to grow his business. How do you do that? You can put up new branches, create new concepts. And the other way to go is franchising. But I think I’m good at starting businesses.”