The ingredients of growth through concessions:
- a collection of products and/or services,
- an exclusive territory, sufficient to enable the concessionaire’s business to be profitable,
- together with a possible right to use a brand name as a business name.
The network head agrees to allow the concessionaire an exclusivity over the granted territory to distribute products and/or services.
This type of development is often seen in retail (e.g. grocery product sales), but less frequently however in the catering industry.
The concessionaire can sometimes be required to exclusively obtain stock from the licensor for certain types of products.
Whether bound by an exclusivity agreement or not, the concessionaire purchases its goods and carries on its own business fully independently and at its own risk and benefit.
The Licensor’s Remuneration:
The licensor is generally paid by way of an entry fee that the concessionaire pays it upon joining the network, and then by fees relating to a percentage of the turnover achieved by the latter, and/or on the margin that it collects when supplying the concessionaire.
The advantage for the concessionaire is that it benefits from territorial exclusivity, which is not automatically granted under a franchise agreement or trademark license.
For the licensor, this development model allows it to dispose of its products while controlling the conditions under which they are sold by using standards that must be applied.
Territorial exclusivity granted to a concessionaire can stifle network growth if the concessionaire is not sufficiently dynamic in its zone.
Between franchises and trademark licenses…
Though no know-how is passed on (unlike under franchises), assistance can be provided for (unlike a trademark license).
Avoid confusion: the concession development mode and the concession of a location. The latter is related to a type of lease, and involves granting a person the right to operate a site, for a business (e.g. for operating concessions at airports and railway stations).
The definition of territorial zones must be considered prior to the launch of the network, in order to allow the concessionaire to have a base that is big enough to enable it to succeed. Sometimes, a few meters from a main thoroughfare will be enough, in other cases, a district or a town will be granted in their entirety to the concessionaire. The exclusivity must in any case be limited to the purpose of the business: the licensor may not wish to deny itself the opportunity to develop other non-competing businesses within the territory. Thus, the concessionaire will be solely able to operate a chicken-themed restaurant in the 8th District of Paris, while the licensor will retain the right to sell chicken in the big stores in the same District.