RELATED OF REVIEW LITERATURE

This chapter presents the kind of sources from which the researches
mostly gathered. It also explains the significant information about the
references on the specific study. It is a summary of all the theories and
findings obtained in the review of related literature and studies and relating
them to the objective of the problem of the study.
Franchising
The concept of franchising dates back to the Middle Ages, but the
widespread use of franchise strategies began in the United States around
1850 when Singer Sewing Machines, located in New England, decided to
market its products throughout the United States. At the time, the
franchising element (Product and Brand) consisted only of the right to use
the brand name at the store and sell the product. Towards the end of the
century General Motors and Coca-Cola began to use the franchising concept
to expand the markets to which they could sell their products. Throughout
the twentieth century, franchising expanded gradually into other industries.
In 1917 the first franchised grocery store, the Piggly Wiggly went into
business. While Hertz began franchising automobile rentals in 1925, the first
fast-food franchise, A & W opened in the same year.
Concept of franchising. Felstead (as cited in Connell, 1997) defined
franchising as a business relationship whereby a franchisor permits a
franchisee to use its brand name, product, or system of business in a
specified and ongoing manner return for a fee.
In the concept of franchising, the franchisor acts a big brother to the
franchisee. (Bartolome 2007). In the contractual franchise agreement
between the franchisor and the franchisee, both parties must establish both
a contractual and a personal relationship in order to make the franchise a
success.
Franchise as it defined by Gupta (2009), is a contractual license
granted by the franchisor to the franchisee in which it gives the franchisee
the choice to either use or not the business format and system provided by
the franchisor; allows the franchisee to use the franchisors trade name
solely for business purposes; obliges the franchisor to provide continuous
support for the franchisee in considerable terms and requires the franchisee
to make a significant investment from his own resources in order to pay the
franchisor of the minimum investment required in the specific franchise/s.
according to a popular book entitled Franchising for Dummies by Michael
Seid and Dave Thomas, franchising is a system for expanding a business and
distributing goods and services and an opportunity to operate a business
under a recognized brand name.

According to Philippine Association chair and Francorp Philippines chief

executive Algeria Limjoco, the industry remained optimistic despite the
overall doom-and-gloom situation, as the franchising business was not likely
to be as hard hit as other industries. Despite the economic crisis, the local
franchising industries expand and even its reach to foreign markets. The
franchising industry, in fact, could provide returning overseas Filipino workers
and even retrenched workers the opportunity to remain productive and
generate much needed-income. Franchising does well in good times, and
even bettering challenging times. She said. With our young and large
population whose need are fully matched by the products and services of the
highly creative members of the PFA, market demand will remain up and the
economy can post decent growth, she added.
According to DTI dateline (August 31, 2009), Franchising robust
despite global crisis , AFFI President and Binalot owner Rommel Juan states
that franchising is the most practical and least risky route for entrepreneurs
to go into business , as franchises are trusted businesses with proven
concepts and operating models. Those who do not have any experience
with business are thus spared of the difficulties of having to start up their
own, which is more risky and difficult route. Franchises are like plug-and-play
Businesses that enable entrepreneurs to start their business right from the
first day of operations.
According to Brendt, (2009), there are 551 franchised systems in
South Africa, managing over 30 000 outlets which employ over 500 000
people. The franchise business sector contributes up to 12.5% of South
Africas gross domestic product (GDP- Erasmus, Strydom, & Kloppers, 2013,
Brent, 2009). The most common forms of franchise systems are product and
trade name franchises, business format franchises and joint venture
franchises (Co, Groenwald, Mitchell, Nayager & Visser, 2007). In South Africa
franchising is dominant in the fast food industry, given its convenience to
customers and dependence brand loyalty and standardization.
Types of Franchise (Bailey,2009)
Depending on operational structure:
Manufacturer Franchise- the franchisee is given the right to produce or
manufacture the original products of the franchisor.
Product franchise the franchise is given the right to sell and distribute the
product.
Business Format Franchise the franchise is given the right to produce, sell
and distribute the products but not only that, he / she will be given the right
to adapt the operational structure or the proven system of the business.
Depending on ownership

Single-unit Franchise the ownership of a single franchise outlet is given to

the franchisee.
Multi-unit Franchise the franchisee is allowed to open franchise outlets In
different locations.
Existing Franchise- the franchisee is taking over an established franchise that
was owned by a prior entity.

Advantages and disadvantages of franchising

For every type of business and organization there are advantages and
disadvantages, the same goes with franchising. In franchising there are two parties
in the contract which means that there are good and bad sides from both view
points; franchisors and franchisees. Here the main concern is the franchisor and
there for the advantages and disadvantages are presented from the franchisors
point of view (Murray 2004, 16; Murphy 2006, 183).
Franchising expands the business much faster than growing through
company owned units, this is because there is a greater amount of money and
individuals involved in franchising operations than if company should invest own
resources in growing the operations. On the other hand there might be a loss of
control over the network if it grows so big that the franchisor cannot handle
everything anymore. The franchisor might also create an illusion where he/she
would not have to take that much interest in the daily operations of the business
because of the franchisees are doing all of that kind of work (Francoise 1997, 14-15;
Murray 2004, 19-21; Keup 2007, 56-58; Murphy 2006, 185-193; Barringer, et al.
2010, 522). Figure 4 shows the good and bad sides of the expansion aspect.

Fast Food
Fast Food is the term given to food that is prepared and served very
quickly, first popularized in the 1950s in the United States. While any meal
with low preparation time can be considered fast food, typically the term
refers to food in a restaurant or store with preheated or precooked
ingredients, and served to the customer in a packaged form for take-out/takeway. Fast food restaurants are traditionally separated by their ability to serve
food via a drive-through. The term fast food was recognized in a dictionary
by Merriam Webster in 1951
Outlets may be stands or kiosks which may provide no shelter, no
seating or fast food restaurants (also known as quick service restaurants).
Franchise operations which are part of restaurant chains have standardized
foodstuffs ship to each restaurant from central locations.
The largest expansion of franchising occurred in the late 1940s at the
end of World War II when many veterans returned home desiring to open their
own businesses. In the 1950s major fast-food chains like Burger King,

McDonalds and Dunkin Donuts 5 began to appear. By the 1960s onward,

these and other American fast food chains began their expansion into
international markets.
Most of the well established fast food chains are franchises with a
large international presence such as McDonalds, Subway, KFC, Burger King,
Pizza Hut and more. In a franchise agreement, the parent company, the
franchisor gives the right to the franchisee, an independent entrepreneur, to
market and sell branded products and services of a franchisor (Furquim De
Azevedo, 2010). In return, the franchisee pays fees such as royalties,
advertising fees, franchise fee and a development fee (if a franchisee decides
to open an additional unit) (Mihoubi, 2011).

Max
Max was the most popular fast food company in Sweden last year (2010),
according to a market research conducted by ISI Winning (2011). It is also one
of the largest Swedish fast food restaurant chains, with currently 82 restaurants
located in Sweden, with three company owned restaurants located in Jonkoping
(max.se, 20 May). The headquarters are located in Lulea, Sweden. The restaurant
located at Ekhagen nearby the highway E4 already has an SST implemented in form
of an Express-cashier where the customers can make their orders and pay by credit
card and then receive their orders at a specific Express-cashier handout desk.
The authors believed Max to be a good opposite to Subway. Max already had
started implementing SSTs in Jonkoping and since the majority of restaurants are
company owned, it would provide the authors with a different setting. Additionally,
Max origins from Sweden where it exclusively operates in comparison with Subway
which originated in the U.S. and then expanded abroad and now operates globally.

McDonald
McDonald's, the largest fast-food chain in the world and the brand
most associated with the term "fast food," was founded as a barbecue drivein in 1940 by Dick and MacMcDonald. After discovering that most of their
profits came from hamburgers, the brothers closed their restaurant for three
months and reopened it in 1948 as a walk-up stand offering a simple menu
of hamburgers, french fries, shakes, coffee, and Coca-Cola, served in
disposable paper wrapping. As a result, they were able to produce
hamburgers and fries constantly, without waiting for customer orders, and
could serve them immediately; hamburgers cost 15 cents, about half the
price at a typical diner. Their streamlined production method, which they
named the "Speedee Service System" was influenced by the production line
innovations of Henry Ford

Types of Economic Factors That Can Affect the Fast Food Industry
(Frances Burks, studioD)
The fast food industry generates about $165 billion in revenue
annually, based on 2011 market research by IBISWorld. The research also
indicates that about 184,200 fast food businesses operate in the United
States. Meal prices affect consumers restaurant choices in some economic
climates. However, consumers desire for more variety and healthier foods at
restaurants sometimes outweigh their concerns about costs.
Economic Downturns
Fast food restaurants tend to fare better during an economic downturn
than pricier restaurants do. Consumers living on a tight budget in a bad
economy often turn to fast food chains for inexpensive meals, according to
The Economist magazine. However, the magazine notes that a long-term
recession makes even fast food restaurants vulnerable to profit losses if
consumers eat at home more often to save money. In such cases, big
restaurant chains may respond by cutting their prices further and increasing
advertising to lure consumers back to their restaurants. Smaller chains may
not have the budgets to do the same to protect their profits.
Mergers
Fast food chains sometimes merge during a recession to grab a bigger
share of the market and increase profits. Arbys and Wendys merged in 2008
as U.S. unemployment rates were rising and fewer consumers were dining
out. The merger expanded market share for Arbys and Wendys, because it
created the third-largest fast food chain in the United States. Mergers also
can help fast food restaurants increase their customer base and revenue by
expanding their hours of operation. For example, a restaurant chain that
doesnt serve breakfast may merge with a chain that does.
Economic Recovery
Low meal prices are less of a concern for some consumers as a slow
economy begins to rebound. IBISWorld predicts fast food restaurants need to
expand their menus when price isnt a top concern for consumers. QSR
magazine reports 2011 sales for McDonalds outpaced the companys 2009
sales by $1.5 billion after the chain included fruit smoothies and other new
items on its menu. Consumer demand for healthy meals is causing
McDonalds and other fast food restaurants to add fruits and vegetables to
their menus, according to "QSR."
Commodity Prices
Low prices on meats, vegetables and other commodities help fast food
restaurants cut meal prices without losing profits. However, cutting prices to

attract customers can backfire when cutbacks exceed food and production
costs. For example, The Economist notes some Burger King franchise
owners sued the company in 2009, because a corporate promotion required
franchisees to sell a double cheeseburger for $1 that cost a $1.10 to make.
The court ruled in Burger King's favor.

Employee Benefits
Because there are many factors that can contribute to what motivates
an employee, the current research will only focus on the role of employee
benefits and incentive offered (or not offered) on job satisfaction.
By providing all employees with incentives or benefits for doing their
job well, most employers can expect a level of respect from their employees
(Cunningham & Mahoney, 2004). Unfortunately, it is well known in the
hospitality industry that most part-time employees do not receive many, if
any, benefits, and incentives are very sparse (Cunningham & Mahoney,
2004). Moncarz, Zhao and Kay (2008) studied how incentives and
benefits affect overall job performance of part-time employees. Usually
employee recognition, rewards, and compensation were used mainly for fulltime employees, but the authors pointed out that using these incentives on
non-managerial and 12 part-time employees could have a huge positive
effect on work performance. The study showed that part-time employees
who receive these benefits or initiatives tend to assume greater
responsibilities in the workplace; management tends to be more likely to use
selective hiring techniques; employers also tend to use competitive pay
grades more; and team-oriented work environments are used more often.
Most part-time employees do not receive full benefit packages for the
work they do, and some receive no additional compensation besides salary.
Doepinghaus and Feldman (1993) studied the top 25 benefits that parttime hospitality industry workers receive at their current job and found that
out of 945 participants, no significant benefits, such as health care or
insurance, were reported. The top five benefits included in a parttime
employees compensation were free parking, vacation leave, merchandise
discounts, sick leave, and retirement contributions. The authors also stated
that most of these benefits were not an enticement to attract employees to a
job or to retain these employees; instead they were just considered an added
bonus.
fewer full-time employees receiving benefits and more part-time
employees not receiving benefits, Keselenko noted.
"One common employer misconception is that older employees value
benefits more than younger employees," says Anita Potter, assistance vice
president, LIMRA group product research. "In fact when it comes to benefits,

younger employees value benefits nearly as much as older employees. The

different values that employees place on benefits appear to be more a
function of life experience rather than life stage, income,
or education levels."
"Overwhelmingly, our research found that employees simply did not
know how much their benefits were worth," says Potter. "Without
understanding the value of their benefits, how are employees making
knowledgeable choices about who they work for and the benefits they
select?"
According to Harry and Fink, 1994. One might expect employee
satisfaction to be related to the actuarial value and type of benefits and level
(i.e. amount and types of benefits) of a benefits package to be positively
associated with employee benefits Micelli and Lane, 1991.
According to Deadrick and Gibson in spite of the prominence of
benefits issues to organization, when reviewing the human resource
management (HRM) literature, there is a surprising general absence of
attention given to employee benefits. Indeed in their analysis of gaps
between HRM academic research and practitioners interest.
According to Estopace, Leonard Brian Vasquez, Camille V.
Fallarine, Stephanie B. (March 2007) the authors stated that the
demographic profile can affect the performance level of difference
employees. According to the findings the majority of employees are
motivated when it comes to age and salary.
According to Jonathan Lister,(2010) states that perks and benefits
can make or break your companys ability to attract the best and brightest in
your industry. Offering health insurance, benefits to full time workers should
be a goal of your strategic compensation plan. You can combine health
insurance with other company perks, including paid holidays and guaranteed
paid vacation time, to attract more qualified workers to your business. Your
decision to offer these benefits is also contingents on the success of your
company. You may choose to add health care coverage and paid time off to
your benefits package only after your company is showing profitability or
make it past the first year.
According to Jon-Chao Hong, (1995) suggest that everyone works in
expectations of some rewards and welfare is one of them. In order to
understand the impact of employee benefits on employees work-motivation
and productivity, questionnaire were sent to corporation which had
undertaken employee benefit programmers. Some of the significant results
of this study are: employee benefit programmers have greater impact on the
work-motivation than on productivity; monetary benefit programmers are
most highly valued by both executives and workers; there is a cognitive gap
between management and worker on the importance of employee benefit

programmers, different genders have different benefit demands; unmarried

employees, more than married employees, perceive that employee benefits
have a greater impact on job performance. Issues surrounding non-wage
forms of compensation are very important for practitioners, policymakers
and researches (Butler,1999) . With a U.S. emphasis on private rather than
public provision of employee benefits including health insurance, retirement
plans and family friendly policies many employees rely on their employer for
benefits and uneven coverage leaves some individuals vulnerable. But
escalating benefits costs are a major concern for employers and perhaps an
impediment for improved competitiveness (Broderick and Gerhart,1997)