Franchising: A Business Expansion Tool

Act. City Link recognized the market niche for importers, exporters, agents, and airlines and thus filled the gap. While the 'Red Star' service was efficient, many prospective and current users found it inconvenient to collect and deliver parcels from rail stations. Consequently, with rising demand, City Link started offering similar services at other major city centers across the UK through the appointment of 150 agents. In 1972, to better manage the administrative and operational aspects of the company, City Link Transport Holdings Limited was formed.

City Link experienced rapid expansion and reached a critical stage where standardizing operational and logistical procedures became necessary to sustain its size and growth rate. To achieve this, a franchise scheme was implemented, despite the tricky issue of whether franchising was suitable for its operations. A franchise zone, such as Tunbridge Wells, Maidstone, Newcastle, Sunderland etc., was sold instead of a single franchise agreement for an outlet. This meant that running a franchise was not a small operation with 3-5 employees for a single outlet.

Running a franchise for a delivery company such as Initial City Link requires managing a workforce of about 50-150 and depots over 17,500 square feet. Due to the interconnected nature of the franchise, one franchisee's success is dependent on another's, which in turn affects the overall profit for both the franchisee and the parent company. In order to ensure successful franchise operations, potential franchisees must be thoroughly vetted and interviewed, which is why the directors at Initial City Link take a highly involved approach. This differs from a single outlet franchise agreement where failure of one outlet would not significantly harm the image or profits of

the company.

However, there are advantages to this system. If a franchisee's territory experiences a downturn in business, they can still earn some income by delivering parcels for other franchisees whose areas are receiving a "normal" level of business. Initial City Link operates according to this principle, with prices pre-determined and set by the Head Office and issued to all franchisees. Franchisees must adhere to this price list. If deliveries are within the franchisee's own area, they retain 100% of the cost (*royalties to be paid). But if the delivery address is outside of the franchisee's area, payment is made to the franchisee who carries out the delivery.