A Great Method for Business Expansion. But Do It Wisely

Most of us would agree that among all the business strategies for expansion, franchising is one of the most effective and popular choices, especially in the food and beverage (F&B) industry. Such a business expansion method has been proven successful by both local and international brands alike, namely McDonald’s, Subway, Old Town White Coffee and Bangi Kopitiam.

However, it is important to note that the one of the most basic elements before you start a franchise business of your own would be to protect your intellectual property rights – and your brand name, needs to first be protected via a trademark registration.

The subject on trademark in itself, is quite an elaborate one so for the purpose of this article, we will only focus on – the importance of choosing a strong mark.

When starting a new business, pick a name that is distinctive. Distinctiveness may serve as a requirement to obtain protection through the registration of a trademark by the Intellectual Property Corporation of Malaysia (MyIPO). A mark needs to have a characteristic that makes it distinct from others of its kind. A mark is “inherently distinctive” if it is:

  • Invented, or completely made up (e.g. KODAK, XEROX or NIKE);
  • Arbitrary, having common meaning but unrelated to the nature of business (e.g. DELL for computers, CAMEL for cigarette); or
  • Suggestive, requires some imagination to reach a conclusion as to the nature of the goods (e.g. CADBURY for chocolate).

Trademarks that do not fulfill the above may become distinctive through extensive usage and/or advertising. When that happens, the trademark fills the marketplace and gains a requisite level of market recognition among consumers after a long period of time, the trademark is said to have acquired secondary meaning. Eventually, the trademark will be granted registration as an inherently distinctive mark.

When it is not distinctive, it is considered as a generic mark. Generic marks (that are almost entirely referenced to the product or service) will never be distinctive and is not protectable, no matter how widely recognized they are by consumers. Examples such as – Restaurant, Bistro, Café or Kopitiam – those are generic names which cannot be registered.

Moving on, entrepreneurs who wish to step into franchising have to understand and be willing to adopt a new mindset or approach – that it will never be the as how they used to operate their business. Entering into the world of franchising is a double-edged sword, full of great opportunities yet threats lie ahead. In order to be successful and to be able to have the staying power in your franchise business, we would advise you to keep these 10 franchising pillars in mind.

Pillar 1:

Legalities

A great franchise system needs to be able to be executed within the confinement of the law. In Malaysia it will be very relevant as we are among the only three countries in the world with a Franchise Act. Hence proper franchise agreements which consist of all the terms related to the collaboration between the franchisor and franchisee and all the other relevant legalities issues should be documented.

Pillar 2:

Unique Selling Proposition

An F&B entrepreneur needs to ask himself this question – What is SO special about his product or service? It could be his secret recipe, system, advertising efforts, etc. There must be a strong and distinctive USP in order for your business to truly stand out from the rest.

Pillar 3:

Business Concept

If the business concept is to be an outlet where patrons could chill and chat then its interior design and menu mix should be done right, to truly create that environment. F&B entrepreneurs need to always be able to deliver their concept rightly and have the ability to adapt to the ever-changing market demand.

Pillar 4:

Franchise System

Franchising is basically leveraging on the power of duplication hence in order for the business expansion to grow successfully, it must possess a solid franchise system. Without a strong foundation, it will be near impossible to grow. A franchise system may be complex but it should not be too complex to the extent that it makes it difficult for all its franchisees to run their outlets smoothly.

Pillar 5:

Accounts & Finance

Many F&B-related businesses failed due to accounting issues and franchising is no different in this manner. Entrepreneurs will need to do costing and projection of sales revenue versus overheads, while considering their own margin as franchisor and the margin of its franchisee in order for the whole franchise chain to operate with profits. In any F&B franchise business, food wastages, pilfering and poor managing of stocks could be some of the major factors contributing to their downfall if they are not managed effectively.

Pillar 6:

Management Team

No matter how great the franchise system is, it still needs to be operated and executed by people. Even if the franchise system may not be very good at the beginning, as long as the right people are there in the system, eventually the system will be improved and successful. Many successful F&B franchises are being lead by competent leaders and followed by people franchise with a passion towards their jobs.

Pillar 7:

Innovation

Did you ever notice that successful F&B franchises always bring a wave of fresh new dining experiences in their outlets? This is because the franchise business owner understands the importance of staying relevant in the market. Research and development of the product mix, technologies, know-hows, ambience of the outlet and marketing campaign need to be done periodically. Without innovations, these businesses are at risk of being eliminated by the competition eventually.

Pillar 8:

Support Infrastructure

Many franchise businesses failed because the Franchisees had very little support from their franchisors. With the intention of branching out, the entire programme needs to be planned properly – considerations about franchisees must not be compromised. No matter where the franchisees are at – locally or internationally, no matter what problems they have – from machine breakdowns to insufficient raw supplies, a franchisor must be able to provide continuous support and assistance.

Pillar 9

Marketing

The difference between an F&B franchise business and a conventional business in the eyes of the consumers lies in their marketing efforts. A franchise business needs to leverage on its strength in number of outlets. So a good investment for a franchise business would be on branding and marketing efforts. Failure to incorporate these activities will affect the business negatively.

Pillar 10

Relationship Management

This is one pillar with the utmost importance, in order for the rest of the pillars to be executed effectively and smoothly. Managing relationships has three phases – (i) manage the franchisor’s own internal management team; (ii) manage the relationship between the franchisor and its franchisees; and (iii) manage the relationship with the customers.

To conclude, a trademark is the key aspect to look into before venturing into an F&B business. Understanding the importance of the intellectual property rights is vital. After securing one’s intellectual property rights, entrepreneurs may look into expanding their business through franchising; a method with proven success if everything is done in order.

Important note: The opinions regarding these two huge subjects expressed in the above article are those of the authors. There are many more elements involved in a trademark registration and franchising as a way of business expansion. Therefore, we would like to emphasize that it would be best to seek advice from professionals before any action is taken.

Written by:

Ray Low – Principal Franchise Consultant & Alex Neoh – Trademark Director

Intellect Group of IP Companies

Intellect Group provides intellectual property consulting in areas such as trademark, copyright, patent, industrial design, franchising and licensing.



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