Video Rental Franchise vs. Independent

In just over two decades, franchises have grown exponentially from a mere 1600 outlets to over 650,000 outlets in the U.S. alone. The video rental franchise realm accounts for several thousand outlets. One franchise consultant has predicted the number of outlets to exceed one million by the year 2010, astonishing. With tons of successful franchises, it’s easy to become shortsighted from time to time. Meaning, we see those giant hamburger, pizza, and even video rental chains and immediately assume franchising is a sure fire way of profitability. A little research will show that although franchises possess a higher success rate than independents, it doesn’t come without some considerable baggage.

Let’s start by examining Quizno’s. Most us of have heard of Quizno’s toasted sandwiches, pretty neat concept. Since we don’t live in a perfect world, you will find at least one website with several very unhappy franchisees. One particular individual tells his story about losing his entire life savings through franchising. Another individual is up in arms about the amount of take home pay. After investing $250,000.00 dollars he expected to take home more than $45,000.00 annually, especially with the amount of time and effort required to remain competitive. Now, let’s turn our attention over to a super power in the franchising industry.

In my hometown, I personally witnessed the closure of a McDonald’s store because it was not profitable. Mc Donald’s has been around since the 1950’s and sets the standard, so-to-speak, for franchising. That just goes to show that no business is a sure fire thing. On the upside, we have dozens of successful McDonald’s stores here in El Paso alone. The above are just two examples of franchises in the fast food industry. The video rental industry is no exception and has experienced its share of set backs.

Video Rental Franchise vs. Independent

A common thread among all franchisors is an item required by Federal law and more specifically, the Federal Trade Commission (FTC), called a Uniform Franchise Offering Circular or UFOC for short. Item 19 of the UFOC exposes the financial health of a franchisor. A franchisor may readily demonstrate a financially sound company, however, that has very little to do with the franchisee. Meaning, a franchisor may appear financially solid, mainly in part to initial franchise fees and royalties generated from franchisees. A typical $20,000.00 franchise fee along with a 6 percent royalty multiplied by hundreds and in some cases thousands of franchisees, will add up to millions of dollars.

Those millions of dollars belong to corporate and not the franchisee. It’s easy to make the correlation that the franchisors success will guarantee the franchisees success, not necessarily so. Most franchisees succeed through some trial and error and owning more than one franchise. Unfortunately, in many cases, it cost more than $1,000,000.00 to buy just one large franchise. Fortunately, video rental franchises are not as expensive. Depending on the size of your store, you can own a Blockbuster store for slightly over $200,000 and as much as $700,000.00.

At this time, let’s briefly discuss a couple of factors in the independent realm. The first critical area of discussion is an identity crisis. Although you won’t have to worry about initial franchise fees and monthly royalties, you will need to tirelessly work on your identity. With a strong demand for your product or service, this can be achieved over time. McDonald’s had to start somewhere. Another area to consider is the amount of financial responsibility tied to other parties. For example, unless you own your own property, you will need to lease property for your store as an independent or franchisee.

If your business goes under, you have an agreement to fulfill on property. In the case of a franchisee, if your business goes under, you may have some obligations to fulfill in addition to standard agreements (there’s some more of that baggage we were talking about earlier). The independent realm becomes a little more attractive after a few observations. Moreover, a potential investor can start a video store for as little as $50,000.00. Someone may be tempted to open a small chain of their own at that rate.

In conclusion, it boils down to your own personal preference. Knowledge, experience, and education will play a vital role whether you choose to start a business independently or franchise. Sit back and enjoy the in-home entertainment or jump in the driver’s seat and distribute the experience.