Early records suggest that in its most basic format, franchising had been used as early as 5000 BC when pharohs granted the rights to use the designs and know how of building pyramids to remote areas in the Far East and the Americas.
The next recorded instance of what might be considered a forerunner of modern-day franchising can be traced to medieval England where British Royalty rewarded deserving politicians and soldiers with a “franchise” or right to collect taxes from residents of a clearly defined territory (called a “barony” in this case) in return for an obligation to maintain civil order. In return, these barons or early “franchisees” were expected to pay an agreed percentage of the taxes collected to the royal treasury. In this way a monarchy could control the land by providing protection while extracting tax revenues. This gave rise to the term “royalty” payment - which continues to this day.
The franchise concept eventually evolved to a more commercial aspect when German breweries in the mid 1800’s granted “franchises” to certain taverns and pubs in the form of an exclusive right to sell their beer.
Much later, city administrators started to grant monopoly rights or “franchises” to privately-owned street or utility companies for the provision of water, sewerage, gas and electricity services to the public.
Singer Sewing Machine
The mid - 1800's saw the first real Business Format Franchise when franchising as an actual business strategy was introduced in North America in the 1850’s with Singer Sewing Machines. At that time, North America was mostly a vast wilderness dotted with isolated towns and villages. Singer sewing machines were heavy, cast iron contraptions that were expensive to buy and difficult to transport. Although there was a demand for the machines throughout the farming communities of North America, the difficulty lay in getting them out to the people who wanted them and servicing the machines as needed. Someone at Singer devised the notion of granting an “exclusive” license to only one storeowner in a given town or village in return for a nominal royalty for the use of the trade name. Hence, that store would be the only business that could sell and service Singer Sewing Machines in its area. Once the storeowner hung a sign over his store proclaiming, “Singer Sewing Machines Sold and Serviced Here,” the women in the community visited his store for the latest Singer Sewing Machine models, accessories and service. While they were in his store, they would purchase their flour, sugar, planting seed, cloth and other farming supplies at the same time. Hence, the local storeowner was doing more business than his competitors because he was able to take advantage of the customer demand or goodwill associated with the Singer Sewing Machine “Brand” or trademark.
Martha Matilda Harper
“Business Format Franchising” as we now know it today may have come into being in 1891 with the efforts of a little known businesswoman by the name of Martha Matilda Harper. Ms Harper began by opening a chain of “Harper Hairdressing Parlours” in Buffalo, New York, Detroit, Chicago, London, Paris, Toronto, San Francisco and Seattle. By 1929 Harper had over 500 shops worldwide. Needing a way to grow her business, she developed a method of doing business that she could easily and consistently teach to others, and subsequently recruited people that were willing to follow her “Harper winning formula”. The headquarters of Harper Parlours took care of training, supply of product and business support. By 1926 a Harper “Textbook” was written; thereby formalizing Harper’s procedures, philosophy and business operations. Yearly reunions brought all the Parlour franchisees together to exchange ideas, re-training and motivation. Martha Matilda Harper’s practical and common sense approach to standardizing and replicating her business model thereby laid the modern day foundations for the dominant form of franchising that exists today
General Motors & Petrol Filling Stations
General Motors were also involved in franchising in the early 1900's, laying the foundations for a franchised motor dealership network, a system that still predominates in motor vehicle retailing to this day. When franchising became more popular at the turn of the 20th Century, especially in the United States, with the popularization off the automobile and everything that went with it – including automotive dealerships, gas stations, automotive repair shops, retail grocery stores and “fast food” restaurants catering to the increasing numbers of motorists. As populations became increasingly mobilized, shopping areas (or “market areas”) for consumers increased to include a greater number of competing businesses within those areas. More cars lead to rush hour traffic, traffic jams and traveling greater distances to work. “Free” time soon became increasingly rare and precious.
The Bottling Industry
One of the most successful early Franchises was the soft drinks bottling industry where Coca-Cola, Pepsi and 7-up initiated the use of franchising as an economic method of expansion for the sales and distribution of their brands. Other “Brand Name” products such as Crest Toothpaste, Kleenex, Aspirin and Heinz Ketchup became more important to consumers who no longer had the time or patience to constantly shop for the best product for the best price. “Brand Name” soon became synonymous with “Top Quality”. Hence, branded products captured greater market share. This meant that the companies that owned those branded products – from General Motors and Ford to Texaco and Shell – could start granting the right to sell their branded products to people in specific areas under a franchise agreement. Thereby giving rise to what became known as “product and trade name” franchising.
World War II
Early successes notwithstanding, it was not until the late 1940’s that franchising began its dramatic ascent towards becoming the most successful distribution concept ever known. The catalyst for growth came from the end of World War II. The end of World War II meant a major demobilization drive of the US armed forces. Redundant military personnel, flush with cash received from termination pay, were eagerly looking for ways to earn a living and start families. Many had no desire to return to college or university but wanted to fast track their careers in order to make up for the time lost during the war. But while many of these men and women possessed the required maturity and funding to start small businesses of their own, they often lacked the business skills required to do so successfully. This created the demand for a “turn key” business that could be duplicated successfully, regardless of the backgrounds of the people running it. As the economic boom-time following the Second World War created an overwhelming need for all types of products and services, franchising became the ideal business model to achieve rapid expansion by converting large numbers of former military personnel into competent business operators in a broad range of high-growth industries of the time. It was in this period of expansion that McDonald’s Restaurants, one of the world’s most well-known fast food brands, became popular.
Before Ray Kroc began with McDonalds, he had been a traveling salesman most of his life. By the time he was in his fifties, Ray wanted to get off the road and into a business that was not so dependent on his own efforts, as sales had been. During the course of his travels, he discovered that the original founders of the McDonald’s hamburger empire, Richard and Maurice McDonald (known by their friends as “Dick and Mac”), were thinking of retiring after thirty years. Intrigued by the possibilities, Kroc began to explore the possibility of acquiring the McDonald’s franchise system from its founders. Kroc discovered that McDonald’s numerous trade name franchised restaurants had experienced widely fluctuating operating and financial results over the years. This led Kroc to the conclusion that entrepreneurs do not, in fact, always work the same way. McDonald’s franchisees reflected a melting pot of different backgrounds, skills, strengths and weaknesses as well as financial resources. It was apparent from these results that McDonald’s marketing and trade name were not, in themselves, sufficient to ensure a franchisee’s success. In order for his own investment to be successful, Kroc believed that he had to increase the level and consistency of success throughout the franchise system. He accomplished this by interviewing the McDonald’s founders and McDonald’s most successful franchisees, documenting those operational and managerial “best practices” in the form of exhaustive operations manuals and ensuring that everyone in the franchise system (franchisor management and franchisees alike) successfully completed an in-depth training program.
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Today around the world there are a huge variety of businesses which have been successfully franchised. They break down into 85 business categories including Business Services, Health & Beauty, Cleaning Services, Home Care Services, Delivery & Haulage, Leisure & Travel, Motorist Services, Real Estate, Fast Print and Food.