A Brief Introduction to the History of Franchising
In our contemporary economy, those who wish to own their own business have numerous options. One of the most popular ways to accomplish this goal is by franchising. Actually, the word "franchise" means privilege or freedom in old French. In medieval times -- lords or members of nobility would grant the right to hold commercial activities or to hunt on his land.
This notion extended to the kings granting a franchise for all kinds of moneymaking activities such as operating a ferry, building toll roads, or brewing ale. Under the auspicious of the king, individuals were given the right to monopolize various activities. Ultimately, these commercial franchise ventures become a part of European Common Law.
Over time franchising become more clearly defined as business and industry become more sophisticated. By the mid-nineteenth century, European brewers awarded franchises to certain taverns, giving those establishments the exclusive right to sell their product. In essence, this was the beginning of the concept of franchising.
In the United States, the I. M. Singer Sewing Machine Company started granting distribution franchises for their sewing machines in 1851. Singer also pioneered written franchise contracts similar to contemporary franchise agreements. (Please see case history below)
By the 1880's cities and municipalities began to issue franchises for utilities for water, sewerage, gas, electricity and streetcar companies. By the turn of the century, companies involved in automobile manufacturing, oil refinery and soft drink bottling began to grant the right to distribute and sell their products.
It should be mentioned that in the early 1930's ... during the times of the great Depression ... Howard Johnson established a chain of 25 "Howard Johnson" roadside stands. This was a humble forerunner of the explosive fast food industries of the 1960's and 70's.
In the United States, franchising became a viable business format on the economic scene after World War II. Returning U.S. servicemen and women were able under the G.I. Bill of Rights to secure loans for starting a business. With the "baby boom" driving the economy, there was an essential new need for consumer products and services ... and franchising was the idea business model.
And so in the 50's and 60's, there was the emergence of such respected franchise opportunities as: Holiday Inn ... McDonald's ... Lee Myles ... 7-Eleven ... Baskin-Robbins ... Wendy's ... Roto-Rooter ... Burger King ... H & R Block ... Dunkin Donuts ... Kentucky Fried Chicken ... Midas ... and Sheraton.
During this same time frame, there were numerous fraudulent firms that were created just to defraud innocent investors. Other well-meaning franchise operations were undercapitalized and poorly run resulting in bankruptcies.
To protect potential franchisees and to elevate the franchise concept as a business unit, The International Franchise Association was established. IFA members are required to adhere to the IFA's strict Code of Ethics. Additionally, the IFA works closely with the Congress of the United States and the Federal Trade Commission on improving industry/franchisee relations.
At the center of today's franchise networks are two key elements: a trademark ... and a uniform product or service. Most people still think that the parent company of a fast food company actually owns all the restaurants. Rather in fact, an independent franchisees or a management company that owns and operates several units owns each restaurant. Yet, the menu, the food and the restaurants are all the same from coast-to-coast ... and the name (i.e. trademark) is also the same at each retail outlet. The public requires uniformity in quality, product, service, appearance and price and -- via franchising -- gets it.
Today, there are thousands of successful franchise companies with proven effective business models that not only provide fine products and services to consumers, but also enable individuals to be their own boss.
Franchise Case Study: The Singer Sewing Machine Company
The earliest signs of franchising in the United States dates back to the 1850's just after Isaac Singer invented the Singer Sewing Machine. During his search for an effective and affordable way to distribute his product for his company, the Singer Sewing Centre, Singer ran into problems that prevented his company from becoming successful. His first problem was a lack of capital for manufacturing his machines. Secondly, no one was willing to buy his sewing machines without first being taught how to use them, which required effort that most traditional retailers could not provide. Singer's solution was to charge licensing fees to business people who would own the rights to sell his machines in certain geographical areas. They would also be responsible for teaching consumers how to use his machines, thereby creating sales opportunities. Using the licensing fees to fund manufacturing, he was then able to afford to build his machines and then ship them directly to his newly formed distribution network.
Like most prosperous business ventures, Singer's idea got noticed; and over the next several decades, many other companies began to copy and enhance his business model. At first, companies like Coca-Cola introduced franchising into their bottling and manufacturing areas in order to reduce financial risk. Later, companies such as McDonald's and Burger King took franchising to a whole new level by creating some of the largest franchise networks in the world.