What is a franchise? How franchising works in Pakistan

A franchise lets you run a business under a brand that already exists, using its products, recipes and way of working, in return for fees. It is one of the most common ways brands grow beyond their first few locations, and one of the most common ways investors get into business without starting from zero.

What is a franchise?

A franchise is an agreement between two parties:

• The franchisor owns the brand, the trademark and the system: the menu or product range, suppliers, fit-out design, training and operating standards.
• The franchisee pays for the right to open and run (or fund) an outlet under that brand, in a set location, for a set number of years.

The franchisee gets a brand customers already know and a model that has been tested. The franchisor gets to grow with other people's capital and effort, and keeps control of standards through the agreement.

How the money flows

For example, Gloria Jean's Coffees Pakistan publishes a royalty of 8.5% of sales. See our guide to franchise costs in Pakistan for more published figures.

Types of franchise

Business-format franchise

The most common type, and what most people mean by "franchise": you get the full package of brand, products, layout, training and systems. Cafés, restaurants and retail stores work this way.

Product or distribution franchise

You sell a manufacturer's products under its name, without adopting its whole operating system. Car dealerships and fuel stations are classic examples.

Master franchise

One company buys the rights to a brand for a whole country or region, then opens outlets itself and, if allowed, sub-franchises to others. Most international fast-food brands in Pakistan work like this. KFC Pakistan, for instance, has been owned by a single master franchisee since 2001, first Cupola and, since 2014, Delicious Holdings.

Owner-operated franchise

The franchisee runs the outlet personally: hiring staff, managing stock and serving customers, within the brand's rules. It suits hands-on entrepreneurs.

Company-operated (managed) franchise

The investor funds the outlet and the brand's own team runs it every day. The investor follows performance through reporting instead of working in the business. It suits professionals, business owners and overseas Pakistanis who want to own a business without running it.

Key franchise terms

Territory

The area in which the franchisor agrees not to open, or let others open, a competing outlet.

Term

How long the agreement lasts, and whether and how it can be renewed.

Operations manual

The franchisor's written standards: recipes, service, hygiene, opening and closing routines.

Approved suppliers

Suppliers you must buy from, so every outlet serves the same product.

Transfer

The rules for selling your outlet to someone else, usually with the franchisor's approval.

Unit economics

What one outlet costs to open and run, and what it earns. The single most important thing to understand before you buy.

Pros and cons of buying a franchise

Franchising and the law in Pakistan

Pakistan has no franchise-specific law, and no rule requiring franchisors to give you a disclosure document before you sign. The relationship is set by the agreement itself, which makes reading it carefully essential.

• Contract Act 1872: franchise agreements are governed by general contract law. Pakistan's Supreme Court has treated a franchise as a licence rather than an agency.
• Trade Marks Ordinance 2001: protects brand names and logos. Trademarks are registered with the Intellectual Property Organization of Pakistan (IPO-Pakistan); check that the brand you are buying into is registered to the franchisor.
• State Bank of Pakistan rules: limit the franchise fees and royalties that can be paid to franchisors abroad.
• Competition Act 2010: the Competition Commission of Pakistan can act against deceptive marketing, such as a business passing itself off as an established brand.

This is a summary, not legal advice. Have a lawyer review any agreement before you sign.

Franchise or your own business?

Starting your own business gives you full control and no royalties, but you build the brand, recipes and systems yourself, and most of the risk sits in that learning curve. A franchise costs fees but replaces much of that guesswork with a model that already works somewhere. If you are weighing the two for a café, our guide to opening a café in Pakistan compares the routes side by side.