how did franchising start

Full Answer

What is the origin of franchising?

German beer makers are often cited as the originators of franchising. Dating back to 1800s Europe, many beer makers granted pubs and taverns the rights to sell and use their name. In fact, the word "franchise" is a French derivative meaning privilege or freedom.

What is a ‘franchise’?

Franchising as a way to expand a business while also maintaining control dates back thousands of years possibly as far as the Romans and/or the Chinese according the Lloyd Tarbutton; however, the first use of the word ‘Franc’ to deliver a right or provide was probably found in Europe in the early 1400 th century.

How has business format franchising evolved over time?

Over time, franchising evolved to into ‘Business Format Franchising’. Until this point in time, all franchises relied on exclusive control of products or assets. Business format franchising relies on the value of the business operating system in addition to exclusive control of product or assets. Who was the first business format franchisor?

What was the first type of franchise in the US?

Around the turn of the 20th century, the United States entered into its Industrial Revolution and the growing mobility of Americans created opportunities for manufacturers, gasoline retailers, hospitality and restaurant franchises. The early commercial franchises were in the manufacturing, automotive and beverage industries.

How did the franchise start?

Franchises and The Industrial Revolution (1850's – 1900's) – The first time a commercial franchise business model was used in America was in 1851. The Singer Sewing Machine Company, founded by Isaac Merritt Singer, offered localized company control to owner/operators in exchange for a share in the profits.

Who started franchising?

But slightly before that, Albert Singer, who had had difficulty marketing sewing machines, found success in franchising as a way to sell his machines in the 1860s. He is credited as having been the first to develop a franchise contract. But even further back, we have a familiar name: Benjamin Franklin.

When did the concept of franchising begin?

— In the United States during the mid-1800's, trademark/product franchising developed when the Singer sewing machine company formed a franchise in 1851.

When did franchise start?

The first modern day franchisor was likely Martha Matilda Harper, a Canadian-American who began to franchise the Harper Method Shops in 1891.

How did franchising start in the Philippines?

1995 - Philippine Franchising Association was created and patterned after USAID. The PFA approached the USAID and acquired funding in order to create the first franchising association in the Philippines with the support from Sergio Ortiz-Luis, head of the Private Investment and Trade Opportunities.

Who was named the father of modern franchising in 1902?

Born in 1902, Ray Kroc was a sales guy with an incredible vision. He started out selling milkshake-mixing equipment. He believed in the product (the Multi-Mixer) so much, he mortgaged his home to become a distributor of this machine which could make five milkshakes at the same time.

When did franchising started to boom in the Philippines?

So in 1993, realizing the potential of franchising as a major economic growth catalyst for the Philippines, Lim and industry pioneers such as Jose T. Pardo and Vicente T. Paterno joined hands and held the country's first franchise expo.

Who invented the business?

Business as we know it can be traced back 3,000 years to India and China, where companies – with structures resembling sole proprietorships, partnerships and corporations. At this time, they began entering into contracts and owning property, essentially setting up the basic frameworks of business that we use today.

When did franchising start?

The boom in franchising really did not start until the 1950’s. This was a time of growth for the United States economy and franchising provided the vehicle for many individuals who wanted to own their own business. Brands that established themselves during this time include, McDonalds, Big Boy, White Castle, Dairy Queen, Paul Davis, Martinizing, H & R Block and many others.

Who was the first business format franchisor?

Who was the first business format franchisor? It is generally agreed that Martha Matilda Harper developed the first business format franchise in the United States around 1891. The Harper Salons eventually grew to include approximate 500 locations by the mid 1920’s. ( Click here if you wish to listen to my podcast with Jane Plitt – author of Martha Matilda Harper and the American Dream ).

What was the gold rush of franchising?

The rapid growth of franchising led to a type of gold rush and where there is opportunity there is abuse. Some franchise companies began to sell poorly designed franchise systems and make false representations. It was clear that something had to be done. As would be expected, California led the charge with a body of law instituted in 1968. Over time the FTC realized that a federal law designed to create transparency and to deliver specific information was necessary. In 1978 the FTC issued a body of law commonly called The Franchise Rule . The Franchise Rule requires every franchisor create and maintain an up to date disclosure document which was called a Uniform Franchise Offering Circular (UFOC).

Why is disclosure required in franchising?

The disclosure requirement set a high bar that requires a level of seriousness at the franchisor level and provides a level of transparency to the investor.

What companies used franchising?

These included The British East Indies Company (1602), London Company (1606), the brewery/pub industry in the mid 18 th century and others.

Where does the word "franchise" come from?

The best place to start would be the etymology of the word itself. The word ‘Franchise’ comes from the French word – ‘franc’. Meanings of the word Franc generally fall into two different categories. Often you hear the word translated to mean – ‘Freedom from servitude’. In other publications, the word is translated to mean ‘granting of a right or a privilege’. Today we see ‘franc’ used in conjunction with money or currency. For example, the ‘French Franc’ or the ‘Swiss Franc’. In many ways, each of these usages are similar in that they all allow for greater personal freedom and control.

Who is the founder of McDonald's?

There is considerable interest in the history of McDonalds. It is a common misperception that Ray Kroc was the founder of McDonalds. He was not. McDonalds was founded in 1937 by Richard and Maurice McDonald in East Pasadena, California. Over the years they opened additional locations and more fully developed the ‘self serve’ concept that is so evident in today’s fast food restaurants. By the early 1950’s they had lines out the door. In 1952, the McDonald brothers accepted their first franchisee, Neil Fox, who opened his location in Phoenix. Over time, the McDonald’s brothers franchised additional locations and proved out the franchise concept. It was in 1957 that Ray Croc entered the equation by purchasing the franchise rights for areas outside of California. By the time Ray Croc bought out the McDonald Brothers, there were a few hundred locations around the United States. (For more information on the history of McDonalds, read McDonalds Behind the Golden Arches by John Love).

When did franchising start?

The Middle Ages, as strange as it sounds, is where the business model of franchising started to appear.

What was franchising in the colonial period?

This period is a personal favorite of mine, because it involved what were called “Franchise Kings”. The local sovereign/lord would authorize individuals to hold markets, run local ferries, hold fairs, or to even hunt on his land. This concept extended to the Kings, who would grant a franchise for different types of business activities. European monarchs ( who were technically close enough to being Kings themselves) even bestowed franchises upon local citizens who agreed to take on the risk of establishing colonies. Once a colony was created, the founder was able to gain the protection of the “Crown” in exchange for taxes or royalties.

What was the name of the brewery in Germany in the 1840s?

During the 1840’s, there was a beer brewer in Germany who granted certain rights to several local taverns to sell their beer. What’s interesting about this is the fact that the tavern owners had to use the beer brewer’s trade name. That name: SPATEN. The tavern owners were franchisees of sorts, because they had to pay for the right to use the trade name (a.k.a., the brand name). And, isn’t a brand name one of the more popular reasons that people buy franchises today?

What was the Issac Singer's plan?

The Singer Sewing Machine installment plan made it possible for Singer to ramp up production of his sewing machines; he just needed an efficient distribution system. He developed one, and his licensing system was a precursor to franchising as we know it today.

What did Ray Kroc contribute to franchising?

Ray Kroc’s contributions to franchising have to do with uniformity and cleanliness. A McDonald’s franchise located in Beaufort, South Carolina will have basically the same menu items and will probably be as clean as a McDonald’s franchise located in Portland, Oregon. In addition, the restaurants he built near freeway exit ramps were quickly followed by other businesses—some of the franchises, like hotels and motels that cater to people traveling by automobile. It was a domino effect.

What did the first franchisees pay royalty for?

These first franchisees paid a royalty to the lords in exchange for, among other things, “protection” that was essentially considered to be a monopoly on commercial ventures. Over time, the regulations that governed these first franchisees became a part of European Common Law.

Why did the oil companies start opening gas stations?

The oil companies started opening gasoline service stations to keep all of the automobiles fueled. Some of them became franchises. Some of them, like Chevron, still are.

What was franchising in the Middle Ages?

Local governments, typically medieval fiefdoms, granted high church officials and other wealthy landowners a license to maintain order and assess taxes on the surrounding population. These early franchisees paid a fee to the governments in exchange for protection, mainly from angry citizens who were forced to pay high tax rates. These “franchise” regulations eventually became part of European Common Law.

Who was the first franchise?

The first franchise in America is widely debated, but two individuals stand out from the rest as the likely frontrunners, although one view even traced American franchising history back to Benjamin Franklin, and the beginning of his printing partnerships in 1731.

What was the revolution in the automobile?

This meant that all these new machines, and their drivers, would need to purchase things along the way. Like gasoline and oil for the car. And food for the family as they traveled. Over time, gas stations and fast food enterprises began springing up everywhere.

What was the name of the brewery in Germany in the 1840s?

During the 1840s, a beer brewer in Germany with the brand name ‘Spaten’ granted rights to several local taverns to sell their beer. However, the tavern owners had to use the Spaten trade name. The tavern owners were essentially franchisees, because they had to pay for the right to use the trade name, which still exists today.

What was the role of the colonial government in the colonial period?

The colonial period saw the rise of franchising where a local sovereign would allow certain individuals “rights” to hold markets and goods fairs, run ferries, or even hunt game on his territory. European monarchs even granted franchise-type licenses to citizens who agreed to establish colonies. Once a colony was created, the founder was able to gain the protection of the “Crown” in exchange for taxes or royalties.

Where did the word "franchise" come from?

The word “franchise” traces back to Middle English, where it denoted a grant of legal immunity. It is combined from the Old French word, franche ‘free,’ based on the franc; and the English word ‘frank,’ meaning honest or straightforward. The combined word as we understand it dates from the late 18th century.

Is franchising a business?

Some have called franchising the greatest business model even invented. Whether or not you agree, you must admit that franchising history traces its roots far into the past. The concept, although not necessarily viewed as a business, was born early and has since flourished. A franchising history is an interesting study, and this brief panorama will provide the interesting highlights.

When did franchising start?

When anyone studies the history of franchising, most people are not aware that the business model of franchising actually started over 1,500 years ago in the Middle Ages.

How long has franchising been around?

What they do not know is that franchising has been around much longer than they realize. Actually franchising has been around for over 1,000 years in one from or another.

Why did oil companies start opening gas stations?

As more people purchased automobiles and roads were being developed, oil companies began opening gas stations all along the new roads. Many of these were franchises. As the highway system continued to grow, restaurants also popped up everywhere along these new roads. It didn’t take long before many of these restaurants started franchising.

Who invented the sewing machine?

Mr. Isaac Merrit Singer who is the founder and inventor of the Singer sewing machine, was the father of modern day franchises . Mr. Singer would find people in geographical areas and grant them licenses to sell the sewing machine. These licensees paid for the right to sell the sewing machines. As part of their agreement with Mr. Singer, they even had to teach people how to use the sewing machine.

Who was the first McDonald's franchise?

Ray Kroc, the man who would eventually become the originator of the modern franchise, opened the first McDonald’s franchise in 1955 in Des Plaines, Illinois and founded McDonald’s System, Inc. This later became the McDonald’s Corporation. Kroc bought out the McDonald brothers for $2.7 million in 1961 and took the company to over 500 restaurants in just 8 years. Today there are over 34,000 McDonald’s restaurants. The McDonald’s franchise system has paved the way for the modern franchises we see today.

Is franchising a good business model?

The history of franchising is an amazing and exciting story. We believe that franchising will continue to be the best business model for many years to come.

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When did the federal government start regulating franchises?

By the middle of the 1970s, federal regulations were established governing franchises. By 1979, the Federal Trade Commission set forth guidelines and established the Uniform Franchise Offering Circulars, the standard for disclosing franchise opportunities. This started the era of regulations of franchise practices in the U.S. They were now understood to be a legally operating business; both federally recognized and protected.

What is a contract in franchise?

Contracts are usually in-depth legal agreements between the owner of the franchise and the parent company. This protects both the new franchise owner and the parent company.

What are the components of a franchise contract?

Typically, franchise contracts have two main components; franchising fees and royalties.

What is royalty fee?

Royalties are a percentage of weekly or monthly profits that are paid to the franchised company. Some consider this the ongoing dividends that are used to ensure that a business is running the way the company wants it to run. By monitoring royalties, a parent company will know the success of the franchise.

When did Coca Cola give franchise rights?

In the 1890s, Coca-Cola gave franchising rights to businessmen. In 1891, when Martha Matilda Harper licensed her first salon franchise that they took on the model that many franchises follow even today. Harper offered her franchise owners full support from startup to day to day business. She was determined that her franchises duplicate her business model. She franchised to over 500 locations.

What is a successful food truck franchise?

Successful food truck franchises usually start from a long-standing traditional fast casual dining franchise. The hone their recipes and menus to meet the needs of the food truck operator.

Who was the first American franchise owner?

While some date the idea of a franchise back as far as the middle ages, they really did not appear until the mid-1800s. In 1851, Isaac Singer became the first American franchise owner, when he enlisted traveling salesmen and gave them the branded selling rights to his sewing machines.

When did franchises start?

Franchising really began to blossom in the post-war 1950s and 1960s. Franchisors of convenience goods and services seemed to be popping up on every corner. McDonald's, Kentucky Fried Chicken, laundry services, dry cleaners, hotels, and rental car franchises flooded the marketplace.

How does franchising work?

The franchising model works because it provides a formula for operating a successful business by delivering a uniform product and service to customers. It provides franchisors with the capital they need, creates distribution channels , and gives consumers a recognized standard of what to expect and a higher perceived value. Done right, it's a model that benefits business owners, operators, and customers alike.

How many industries use franchising?

29 industries use franchising as a business model, spread across 226 sub-sectors. Majority, 63% of franchise concepts are non-food brands, while only 37% franchises are classified as food-related brands.

How much does a franchise cost?

Average initial investment level for nearly 1 out of 2 franchises is less than $250,000.

When did franchisors have to disclose their franchise?

But it took until the summer of 1979 for the Federal Trade Commission to issue the Franchise Rule, which established minimum disclosure requirements throughout the country.

Who produces franchising.com?

Franchising.com is produced by Franchise Update Media. Franchise Update Media has its finger on the pulse of franchising with unrivalled audience intelligence and market driven data. No media company understands the franchise landscape deeper than Franchise Update Media.

What was the growth rate of franchises in 2017?

IFA estimates that the number of franchise establishments increased by 1.7% in 2016 y-o-y, and the expected growth rate for 2017 is 1.6%.

What does franchising mean?

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. Naisbitt’s famous comment in Megatrends is no exaggeration – “Franchising is the single most successful marketing concept ever.”

How much did franchise sales in 1985 reach?

Sales by business format franchises tripled from $16 billion in 1971 to $48 billion in 1979. — In 1985, retail sales of franchises exceeded $474 billion. F. Big Overall Growth Returns – 1986 to 1995.

What is the FFFPA?

Although federal legislation has never been adopted, over the last decade the Congress repeatedly introduced a version of the Federal Fair Franchising Practices Act (“FFFPA”), initially introduced by Congressman John LaFalce (D-NY) in the early 1990’s. The bill would allow a private right of actions for damages, recovery of attorneys’ fees, as well as actions by state attorneys general. The bill would regulate both disclosure and the franchise relationship, and addresses fraud, discrimination in the sale of franchises, termination and cancellation, purchasing requirements, non-competition clauses, fiduciary, good faith, and due care duties, encroachment, and mandatory arbitration. After Chairman LaFalce lost the Chair of the Small Business Committee in 1995, the prospects for successful passage of the bill became remote, although efforts are ongoing.

How many gallons of rum did the Singer franchisee import?

The franchisee was granted the right to import 45,000 gallons of rum over three years in exchange for building the Sydney Hospital (the so-called “rum hospital”). — In the United States during the mid-1800’s, trademark/product franchising developed when the Singer sewing machine company formed a franchise in 1851.

Why did Kroc visit McDonald's?

In 1954, Kroc visited the McDonald brothers’ small San Bernardino, California, hamburger stand, because he was curious why the brothers needed so many of Kroc’s milk shake mixers. What Kroc found was a specialized labor system that produced quality sandwiches at an affordable price.

What was the FTC investigation?

The FTC’s disclosure investigation culminated in the Franchise Rule of 1979. IV. The History of Franchising’s Regulatory Environment. Concomitant with the enormous growth of the franchise industry came the growth of franchise abuse, and with the abuse, industry regulation.

What is the IFA code of ethics?

To counter the claims of abuse in franchising, the International Franchise Association (IFA) instituted self-policing mechanisms including a Code of Ethics, and organizations such as the American Association for Franchisees and Dealers (AAFD), and the American Franchise Association (AFA) began to flourish.

The Middle Ages

The Colonial Period

The 1840s

The 1880s

• The modern franchise business model can be traced back to Mr. Isaac Merrit Singer, an entrepreneur of the highest order. Isaac Singer was the founder of I.M. Singer & Company. He was the first person to patent a practical, widely-used sewing machine. Sewing machines started to appear on the scene in the mid-1800’s—but not like the one Singer manufa...

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