Two Types of Franchise Businesses

VG FranchiseThe two main formats for a franchise business, according to the International Franchise Association, are the business format franchise and product distribution franchise. The product distribution franchise is also referred to as traditional franchise. The business format franchise is the franchise format that is used most often as a business model. There are more than 120 industries that use franchising as their business model. These industries include the automotive, lodging, fast food, real estate, and retail products and services.
In the business format franchise the new business owner purchases from the franchise the use of the tradename, products, services, and the system for operating the franchise business. The franchisee and the franchisor maintain a continued business relationship in this business format, with the franchisee offering to the new business owner a full range of services. Some of these services may include site selection for the new business, initial and ongoing training, operating manuals, product, personnel, marketing tools, and financing. Other support can include company newsletters, toll free numbers, websites, workshops and seminars.

The product distribution franchise format focuses on a product or products the franchise owns. This type of franchise may also be referred to as a product/trade name franchise or product/trade name franchising. In this type of franchise format the franchisee manufactures and supplies product to the franchisor. Often this type of franchise business model can be found in the bottling, gasoline, automotive and other manufacturing industries.

The franchise business format is one of the most popular business models used by industries for their business format. The Small Business Administration defines franchising as a business model where a business owners sells to an independent entrepreneur the use of his licensing trademarks and methods of business. Franchising is also referred to as chains or store chains.

A key benefit of buying into a franchise business is the use of a trade name or product that may already have an established customer base. If the product or trade name has a good

reputation it is easier to draw in new customers than if the product or trade name is new or unknown.

Within the many franchise opportunities available in today’s business market, the vapor market is one of the fastest growing franchise businesses. states in their global market summary that the e-cigarette market is expected to grow to over $50 billion by 2025, and that the e-cigarette market will see staggering growth through 2017.

The business format franchise model and the product distribution franchise model both have benefits to their business format. Within the business format franchise, the new franchise business owner obtains a preset business model and built-in support system. This enables the new business to be set up and running quickly. With both franchise formats, if the franchise has a well-known name or product there will already be a built-in customer base. Ongoing support from the franchisee and a pre-existing customer base are key benefits to owning either a business format franchise or a product distribution franchise business.

1. Small Business Administration. “Franchise Businesses.”
28 March 2016

2. International Franchise Association. “What is Franchising”
30 March 2016

3. “Global E-cigarettes & Vaporizer Market Analysis & Forecast Through 2015 to 2025” Summary.
30 March 2016