27 May 2005

Franchising (Part II)

Symbol Groups

A response by wholesalers and independent retailers to the growth of the multiples (e.g. Wal-Mart) has led to the formation of 'symbol', 'voluntary' or 'affiliation' groups. Within this form of contractual chain, a group name is utilised and:
  • The retailers normally are required to obtain a specified proportion of their goods from the group wholesalers.
  • The basis of of the contract is that the retailer sacrifices some freedom of action for the sake of big retailer disciplines that the sponsoring wholesaler seeks to provide.
  • Member retailers normally pay a levy towards the costs of the services that the group provides.
However a number of advantages are also obtained by the retailer in return:
  • Loans and financial support to develop or to extend/refurbish units.
  • Group buying power normally leads to better prices than an independent could obtain.
  • Benefits are gained through own-brand products and the group image.
  • Turnover is increased through lower prices, group marketing expertise, promotions, etc.
  • Selling costs as a percentage of turnover are therefore reduced.
  • Labour productivity is improved through higher turnover and better administrative systems.
  • Space productivity improves through advice on space allocations, merchandising and display.
  • Profitability and return on capital is improved.

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