Benefits and costs of franchising

Essay by amajewskiUniversity, Bachelor'sA-, January 2005

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What are the costs and benefits of Franchising?


Franchising - the word comes from the French and it means "Free", franchising is a method of doing business wherein a franchisor licenses trademarks and methods of doing business to a franchisee in exchange for a recurring royalty fee

Franchising - A legal and commercial relationship between the owner of a trademark or trade name (the Franchisor) and an individual or group who wants to use that identification in business (the franchisee). The Franchisor generally provides business expertise and the franchisee provides a way for the overall business to grow. Franchise arrangements can be subdivided into two categories: Business format and product/ trade name franchising


Franchising is at least 150 years old. One of the earliest examples of franchising occurred in New South Wales, with franchising agreements between hotels and breweries. First American example was the telegraph system operated by various railroad companies however it was controlled by Western Union.

Modern franchising emerged in the 1950s in fast foods restaurants sector; the well-know McDonald's restaurants was the first and most globally successful. Many retail sectors, particularly in the US, are now dominated by franchising to the point where independently-run operations are the exception rather than the rule. As an example, the Sport Clips Franchise organization only opens company owned stores to test new marketing concepts or ideas. As a result, Sport Clips owns very few of the over 200 franchisee owned stores.

In 1994, there were 1,134 franchisors in the Canadian marketplace that had over 60,000 franchisees or over 50 locations per concept. In that same year, more than $4 of every $10 spent at Canadian retail outlets were spent at franchise outlets, representing in excess or $90 billion in sales. Just south of the border, over 3,400 franchisors...