What is a franchise / franchising?

Which Types of Franchising Contracts can be found?

The European Commission differentiated between three types of franchising contracts which can also be found in a mixed form or be subdivided. These are:

Production Franchising
Within the framework of production franchising franchisees receive the rights to produce goods according to the franchisors’ instructions. Thus, occasionally, the drinks industry make the raw materials available to franchisees (e.g. cola concentrate) as well as the know-how for bottling the drink. Normally when production franchising is used, the franchisees are also allowed to sell the goods produced under the name or trademark of the franchisor. This is, therefore, a mixed form of production and distribution franchising.

Distribution Franchising
With distribution franchising franchisees are limited to selling goods supplied by the franchisors under the franchisor’s name. Franchisors can be active here in different ways. Either they make their own goods available to franchisees or they choose certain goods and pass on the order to the producers. Distribution franchising is found above all in the retail trade for very different products such as furniture, cosmetics, sport equipment, baked products etc.

Service Franchising
Within the framework of service franchising franchisees use the know-how of the franchisors to offer services according to the franchisors’ instructions and under their name or trademark. The brand name represents the existing know-how and the particular features of that system. Established service branches such as hotel businesses, restaurant businesses or car rental companies, have very warmly received franchising. It is, however, also becoming more popular among modern service branches.

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