Professional Documents
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Gozum
4th yr. BSBA- Finanacial Management
Sat. - 8:00-11am
History of franchising:
The word "franchise" is derived from the Anglo-French word meaning liberty.
In Middle French, it is franchir to free. In Old French, it is franc, signifying free.
The French term francis means granting rights or power to a peasant or serf.
The English term enfranchise is defined as empowering those who have no rights.
The term Royal Tithes is the predecessor of royalties, and originated as the practice of certain
English men (referred to as freemen) receiving a percentage of the land fees paid by serfs to nobility.
Throughout history, franchising has promoted economic liberation, synergy, and opportunity, and has
been true to its etymological roots freeing commerce from many of the traditional chains that had
bound it.
Naisbitts famous comment in Megatrends is no exaggeration Franchising is the single most
successful marketing concept ever.
In 1925, A&W established walk up root beer stands, and Howard Johnson offered his three flavors of
"superior" ice cream from his Wollaston, Massachusetts drugstore. Howard Johnsons franchised ice
cream business expanded to a group of East Coast restaurants, and in 1940, appeared on a state
turnpike.
Between 1938 and 1955, the following companies commenced franchise activities: Arthur Murray Dance
Studios, Baskin-Robbins ice cream stores, Duraclean carpet cleaning services, McDonalds, Howard
Johnson Motor Lodge, and Harlan Sanderss Kentucky Fried Chicken.
In 1948, Dairy Queen established its 2500th unit.
the Fortune 500 companies added only 10,000 (i.e., franchising accounted for 40 times as many new
jobs).
In 1990, retail sales of franchises exceeded $607 billion, with more than 460,000 units in existence.
In 1993, NASAA unanimously adopted the UFOC Guidelines as the recommended format for franchise
disclosure documents at the state level. The FTC approved the use of the UFOC as an alternative to the
FTCs disclosure requirements later that year.
By 1995, the new UFOC Guidelines were adopted by each of the state franchise regulatory authorities
that require registration of franchise offerings.
Product format franchising -a form of franchising in which the franchisor manufactures and sells
finished or semi-finished products to its dealers or franchisees, who in turn resell the products to
consumers or others in the chain of distribution. Product distribution franchising evolved out of the
exclusive agency relationship that first appeared in the 1840s as a part of a shift in the United States
economy from small firms serving a limited market to large suppliers selling into large regional markets.
example: automotive, petroleum and soft drink
Business format franchising -a unique franchising model that existed prior to World War II but did not
reach full bloom until after the war. It includes not only the product, service, and trademark, but the entire
business format itself: a marketing strategy and plan, operating manuals and standards, quality control,
and a continuing process of assistance and guidance. Under the business format model, the franchisor
licenses the franchisee to use both the franchisors trademark and its system.
example: quick service restaurants, automotive services, lodging, real estate agents, convenience stores
and tax preparation services
Subway (sandwiches and salads) startup costs $84,300 $258,300 (41,916 locations worldwide in
2015).
McDonald's startup costs in 2010, $995,900 $1,842,700 (36,368 Locations in 2015)
7-Eleven Inc. (convenience stores) startup costs in 2010 $40,500- $775,300, (56,439 locations in 2015)
Hampton Inns & Suites (midprice hotels) startup costs in 2010 $3,716,000 $15,148,800
Great Clips (hair salons) startup costs in 2010 $109,000 - $203,000 (3,694 locations in 2015)
H&R Block (tax preparation and now e-filing) startup costs $26,427 - $84,094 (10,800 locations in 2015)
Dunkin' Donuts startup costs in 2010 $537,750 - $1,765,300
Jani-King (commercial cleaning) startup costs $11,400 - $35,050, (11,000 partners worldwide in 2004)
Servpro (insurance and disaster restoration and cleaning) startup costs in 2010 $102,250 - $161,150
MiniMarkets (convenience store and gas station) startup costs in 2010 $1,835,823 - $7,615,065
An Established Business
A franchise offers the advantage of operating under the banner of an already established business. The
ideas, the brand, the operating techniques and much more are already tried and tested and in place
ready to be implemented again and again at a new location as each franchisee takes up the mantle.
A Known Brand
Operating under the banner of a franchise allows a franchisee to take advantage of the previously
established brand of the business. This means there will (in theory) be far less work (and cost) involved
in trying to establish and build on the brand of the business. It will already be known and trusted by the
market and therefore should produced a steady stream of brand-loyal customers. Adopting a franchise
means the advantage of the franchises trademark and thebenefits of a registered trademark.
Business Relationships
The franchisee can also take advantage of the numerous business relationships already established by
the franchisor. In all likelihood, relationships with suppliers (and perhaps distributors) will already be in
place and easy to manage. The advantages of already established relationships with advertisers and
marketing teams may also be of benefit to the new business start-up.
profits in a tax-efficient way as you could by forming a new limited company. A franchisee might benefit
from higher profits in the beginning, but in the long term, they will often find that starting their own
business would have been more profitable.
6.) Challenges or hindrances in the franchising business:
No Control
The first and most significant disadvantage of a franchise is the fact that the franchisee has no control of
the business or how it is run (or very limited control). The rules of the business are already established
and part of the franchise agreement. How the business operates is set out by the brand of the franchise
and it is very rare that a new franchisee will be able to operate outside of these borders.
Tied To Suppliers
Operating a business, youd probably like to keep costs down. Finding the cheapest suppliers to
minimise your overheads and maximise your profits. But being part of a franchise means youll be
required to use the franchise supply network. You will be tied to the suppliers dictated to you by the
franchise agreement. The obviously disadvantage for a franchisee here is not only the lack of control,
but the reduction in potential profits.
Franchise Costs
This is a big disadvantage for most franchises the costs. A franchisee will often be expected to pay an
initial cost to buy into the franchise agreement. As part of the continuing franchise agreement, they will
then be paying on-going fees for the support and training provided by the franchisor. In the long term,
this means a restriction to the amount of profit (and money in your pocket) that you can make as a
franchisee. Completing a company formation to start your own limited company will often be the
better choice, as there will be fewer restrictions on how you operate your business and more potential
avenues for profit, without the overheads.