Franchising
- Advantage of Starting a Franchise
As practiced in retailing, franchising offers
franchisees the advantage of starting up a new business quickly based
on a proven trademark and formula of doing business, as opposed to having
to build a new business and brand from scratch. A well run franchise
would offer a turnkey business: from site selection to lease negotiation,
training, mentoring and ongoing support as well as statutory requirements
and troubleshooting.
Franchising is a method of doing business
wherein a "franchisor" licenses proven methods of doing business to
a "franchisee" in exchange for a recurring payment, fees and a percentage
of sales or profits. According to Financial Times, if sales by US franchise
businesses were translated into national product, they would qualify
as the 7th largest economy in the world.
Various tangibles and intangibles such as
national or international advertising, training, and other support services
are commonly made available by the franchisor, and may indeed be required
by the franchisor, which generally requires audited books, and may subject
the franchisee or the outlet to periodic and surprise spot checks. Failure
of such tests typically involve non-renewal or cancellation of franchise
rights.
The term "franchising"
is used to describe business systems which may or may not fall into
the legal definition provided above. For example, a vending machine
operator may receive a franchise for a particular kind of vending machine,
including a trademark and a royalty, but no method of doing business.
This is called "product franchising" or "trade name franchising".
A franchise agreement will
usually specify the given territory the franchisee retains exclusive
control over, as well as the extent to which the franchisee will be
supported by the franchisor (e.g. training and marketing campaigns).
Franchising dates back
to at least the 1850s; Isaac Singer, who made improvements to an existing
model of a sewing machine, wanted to increase the distribution of his
sewing machines. His effort, though unsuccessful in the long run, was
among the first franchising efforts in the United States. A later example
of franchising was John S. Pemberton's successful franchising of Coca-Cola.
Early American examples include the telegraph system, which was operated
by various railroad companies but controlled by Western Union, and exclusive
agreements between automobile manufacturers and operators of local dealerships.
Modern franchising came
to prominence with the rise of franchise-based food service establishments.
This trend started as early as 1919 with quick service restaurants such
as A&W Root Beer. In 1935, Howard Deering Johnson teamed up with Reginald
Sprague to establish the first modern restaurant franchise. The idea
was to let independent operators use the same name, food, supplies,
logo and even building design in exchange for a fee.
The growth in franchises
picked up steam in the 1930s when such chains as Howard Johnson's started
franchising motels. The 1950s saw a boom of franchise chains in conjunction
with the development of the U.S. interstate highway system.[9] Fast
food restaurants, diners and motel chains exploded. In regards to contemporary
franchise chains, McDonalds is arguably the most successful worldwide
with more restaurant units than any other franchise network.
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