Caffeine Coffee Shops, Inc., sells franchises. Caffeine imposes on its franchisees standards of operation and personnel...

Caffeine Coffee Shops, Inc., sells franchises. Caffeine imposes on its franchisees standards of operation and personnel training methods. What is the potential pitfall to Caffeine if it exercises too much control over its franchisees?

Please explain in detail.

Expert Solution

A franchise is when an entity gives permission to another party to conduct operations, it can be understood as a license to gain knowledge and insights about the business.The franchise has to agree to pay fees to the owner of the franchise and also comply to the operation and personnel training methods as stated in the agreement. In a franchise, it has to be ensured that the standards are maintained.

If Caffeine exercises too much control then they will have to bear the costs to monitor the franchise as well. The investments of the franchise will be more as they have to invest more in monitoring. Also, if there is too much control, then the franchise will not be able to make small changes as per the local tastes which will in the end effect the brand name of the franchise.

Another advantage is that Caffeine will not be able to expand through many franchises as not many people will come forward to set up franchisees because of the excessive number of regulations.

Rahul Sunny answered 8 months ago

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