Question

2. Someone looking to buy a franchise needs to consider the brand's failure rate. For

example, in 2012, the sandwich franchise Blimpie had a failure rate of 45 percent

while rival Subway had a failure rate of 9.13 percent. In other words, almost half

those who opened a Blimpie location failed while only about 1 in 10 Subway

franchises failed. Give three possible explanations for this difference.

Answer 1

One possible explanation is that the Blimpie franchisor is working properly since the franchisees are not receiving proper training and support in order to operate the franchise.

Another reason is that the Blimpie franchise model is simply not efficient (i.e. bad) and it is really hard to operate properly.

On the side of the franchisees, they might not have sufficient working capital since they budgeted higher revenues or lower costs. The franchisor shares the blame for this situation, since before establishing the franchise, the franchisor should request that the franchisee has enough enough working capital to operate the business properly.