Special Report #103
©COPYRIGHT 2003 Franchise Growth Systems– ALL RIGHTS RESERVED
FRANCHISING FACTS & BASIC INFORMATION
Franchising traces its roots back
to ancient China. It is a system for expanding a business and
distributing goods and services. It is a marketing method, which
has been called by many business experts, ‘the greatest marketing
strategy ever created’. It is a program that creates amazing
opportunities for business ownership and personal wealth.
In the United States, only 8% of
retail businesses are franchised. The amazing fact is that the 8%
of franchised businesses do over 40% of the retail sales in the
United States. Franchising has the ability to capture more of the
market share. The increased market share is due to three main
attributes comprising a franchise:
1- A brand name. Even a newer brand
name usually has an advantage over an unaffiliated business.
2- A successful business system. The proven system allows
franchisees to follow a successful plan with a high success rate.
The franchisee can also enjoy cost savings as a result of the
buying power of the franchise.
3- A support system. The franchise will have the expertise of
successful franchisees and franchisor to help them succeed. They
are not in business alone.
The Gallup Organization conducted a
poll on franchisee’s ownership experience and attitudes. Here are
• More than 90% said that their
expectations were met or mostly met
• More than 90% said they considered their franchise to be
• More than 65% said that they would have not been as successful
if they had tried to open the same business on their own.
Franchises are made up of two types
of franchises: product distribution franchises and business format
• Product distribution franchises
are companies like Ford Motor Company, Pepsico or Goodyear Tires.
The franchisee usually manufactures and/or sells the product
through retail outlets. Often special preparations at the retail
level are needed before the product is sold. Franchisees use the
trademarks but usually lack the entire operating system for
running the business. Product distribution franchises represent
the largest percentage of total retail sales coming from all
franchises; however, most franchises are business format
• Business format franchises are companies like Subway, Fantastic
Sams or GNC. The franchisee uses the trademarks but also uses the
franchisor’s specific operating system. This system teaches the
franchisee how to work every aspect of the business, thus
producing consistent quality throughout the system.
Sometimes franchising is referred
to as an industry, however, it is more so a complete marketing
system. More than 80 industries use franchising to get their
products, services and brand names to the consumer. Restaurants
account for only about one third of the available opportunities,
and more than half of franchises available have initial investment
levels below $100,000.
Advantages of Franchising
Consumers believe that when they
shop at a brand name store they are buying higher quality
products. Branding makes it easier to compete with the
well-established, independent operators and also against other
By following the franchise system,
the franchisee’s chances of success increase. Many thousands of
dollars can be saved by the trial and error and experience of the
franchisor. The system is usually predictable. Follow it and you
should achieve similar results of other franchisees.
Although the cost of entrance into
a franchise system includes a franchise fee, the franchisee will
benefit from training, operations manuals, site selection, lease
negotiation, store design, construction savings, reduced cost of
equipment and other advantages in buying power. The franchisor
will often save the franchisee many thousands of dollars by
suggesting the most effective initial marketing plans and allowing
them to use the technology developed to improve operating systems.
Franchisees will also have the support of the franchisor as a
successful, experienced partner of whom they can ask questions, as
well as other franchisees.
The franchisee will benefit from
the system as they pay an ongoing royalty which will allow the
franchisee to benefit from periodic training programs at the
regional office, home office or at the franchisee’s location.
Through the franchisor’s buying system, the franchisee will
usually pay much less than their unaffiliated competitors.
Franchisees also benefit from the
purchasing power that comes from joining with others. They benefit
from professionally designed point-of-sale marketing material,
advertising, grand opening programs and other marketing materials
that unaffiliated businesses can never afford. Franchise systems
are on the forefront of research and development. They have access
to the latest techniques, strategies, test markets, new products
and operating systems.
Each franchisee’s spending power is
combined with the spending power of all other franchisees in the
local market and the rest of the system. This combined spending
power, on advertising for example, often enables franchises not
only to dominate local markets and established unaffiliated
businesses but to also compete effectively against large,
There are, however, few
disadvantages of franchise ownership. One of the main
disadvantages of owning a franchise is a partial loss of
independence. If a franchisee can’t live with the franchise
agreement, another business should be considered.