Company Owned Outlet

Exploring the Role of Company Owned Outlets in Franchising

Short Definition:
A “company owned outlet” is a retail store or service location that is owned and operated by the franchisor itself, rather than by a franchisee.

Long Definition:
Definition of Company Owned OutletIn the franchise industry, a “company owned outlet” refers to a business location that is directly owned and managed by the franchisor, without the involvement of a franchise agreement with a third party. These outlets serve various strategic purposes, including testing new market strategies, training staff, and maintaining a direct line of control over certain portions of the business. Company owned outlets are integral parts of a franchisor’s network, providing valuable insights into operational efficiencies, customer satisfaction, and product or service developments, which can then be rolled out to the franchised locations.

Additional Definition: In a franchised system, the outlets that are owned by the franchisor (or, sometimes, its affiliates).

History and Usage:
Historically, many franchisors begin with one or several company owned outlets before expanding through franchising. These initial outlets are used as a proof of concept and to refine the business model. Over time, even large franchise networks maintain a mix of franchised and company owned outlets to balance direct control with network expansion. This practice allows franchisors to continuously test and implement best practices in a controlled environment.

Five Questions Often Asked and Answers to Each Question

  1. Why do franchisors keep company owned outlets instead of fully franchising their network?
    • Franchisors maintain company owned outlets to directly manage the quality and innovation of their offerings, train staff, and test new business strategies without the complexities of dealing with franchisees.
  2. Can a franchisee ever convert their franchised outlet to a company owned outlet?
    • Typically, the conversion of franchised outlets to company owned outlets happens through a buyback program where the franchisor purchases the franchisee’s assets, though such instances depend on the specific terms of the franchise agreement.
  3. What are the benefits of company owned outlets to the franchise system?
    • Company owned outlets allow franchisors to directly control operations and standards, which helps in maintaining brand integrity and serves as a benchmark for franchisees.
  4. How do company owned outlets affect franchisees?
    • They can provide franchisees with proven and tested business practices and serve as training centers. However, they may also compete with franchisee locations depending on their proximity and market overlap.
  5. Are company owned outlets more profitable than franchised outlets?
    • Profitability can vary; company owned outlets provide all revenue directly to the franchisor but come with higher operational costs, whereas franchised outlets generate income through royalties and fees with less operational involvement from the franchisor.

Example of Three Legally Correct Sentences Using the Term ‘Company Owned Outlet’ Related to Franchising

  1. “The franchisor operates several company owned outlets, which function both as revenue sources and as operational models for franchised units.”
  2. “In the franchise disclosure document, the franchisor must provide financial performance information that includes data from both franchised and company owned outlets.”
  3. “The training program for new franchisees includes a rotation through a company owned outlet to ensure they understand the day-to-day operations and brand standards before managing their own franchised location.”

Company owned outlets are essential components of a franchising strategy, serving as both operational benchmarks and centers for innovation within a franchise network. They help franchisors maintain control over brand standards and provide practical, real-world training for franchisees. Understanding the role and function of company owned outlets can significantly enhance the operational success and cohesion of the entire franchise system.

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