Case On RELE
Maxime is the co-founder of RELE-Rouen, a franchise language school under RELE at Rouen, France. The business took a downturn during the economic crisis from 2009 to 2011 and it has been losing money for three consecutive years. The franchise contract with RELE is due for renewal in two month. At this time, Maxime is presented with three options:
1. Renew franchise contract with RELE
2. Switch to OILT programs
3. Sell the building to EFEL
This report first explored the constrains that Maxime faces in this decision making process. And then the three options are analyzed and compared in details by using a set of criteria, including financial return, franchise …show more content…
Compare this calculation with Scenario 3 at RELE, it can be concluded that by selling the same amount of classes, the RELE model is more profitable. Another calculation is done to prove the hypotheses that the OILT model is more profitable selling by quantity. By increasing the number of classes sold by 10% (which is still within their current capacity, therefore the same fixed cost applied), the profit almost doubled.
Option 3 – Sell the building to EFEL
The valuation of the building and the valuation of the business is, in total, around €2.6m. Details of the calculation can be found in Exhibit 3.
Based on the calculation for the three options, it can be concluded that the €1.5m offered by EFEL is definitely not an attractive offer. Even if Maxime and Beatrice do not want to continue with their business, they should negotiate another deal with EFEL.
Since RELE’s only customer base is executive and it is assumed that the weekday programs are mainly sponsored by corporate, maintaining long-term corporate relationships would be RELE’s primary marketing focus. It also gives RELE reasons to centrally control their marketing effort because it is costly both in terms of time and money to build and maintain relationships with corporations and any mishandling of this relationship can adversely affect RELE’s image. The advantage of a centrally controlled sales operation reduces the franchisee’s cost in business development. The disadvantage