Different types franchises

Early Franchise Entrants
1898 - Automobile Manufacturers
Division of responsibilities:
- manufacturers - design & production
- dealers: sales & service

Coca Cola Company
1886 : coca-cola invented
1899 : Thomas & Whitehead 600-word contract promised to open a bottling plant
• 1901 : no capital to open the bottling plant …?
• 1919 : 1,000 franchised Coca-Cola bottlers

Gas Stations
1930’s - Depression Era Franchising
First example of Conversion Franchising
Taxation of all company-owned gas stations
Why pay that? …. let’s FRANCHISE
Also quicker local response to price changes

Fast Food Fifties
Harlin Sanders - gas station
closed pumps: 142 seat restaurant
1950’s: turned down $164,000
1960 (200) 1980 (6,000)
2007: 13,433 KFC’s world-wide
• San Bernardino, CA 1940
• Dick & Mac McDonald
• inspired by Henry Ford’s assembly line
• Ray Kroc - multi-mixer salesman
• world’s largest chain of FF-rest’s
• over 31,000 locations world-wide

1960’s, 1970’s, 1980’s, 1990’s

Franchising Timeline
1898 - General Motors, …Ford
1899 - Coca-Cola
1930 - Gas Stations
1952 - KFC: 13,433
1955 - McDonalds: 30,823
1964 - 7-Eleven: 31,680
1974 - Subway: 26,197
1980 - Mail Boxes Etc. 5,760
1995 - Curves: 9,882
2001 - Geeks On Call: 305

Principles of Franchising
1,550 company-owned restaurants
Revenues $1.69 billion
Expenses $1.42 billion
Pre-Tax Profit $270 million (16%)
4,550 franchised restaurants
Revenues $486 million (royalties)
Expenses $ 78 million
Pre-Tax Profit $408 million (84%)

Types of Franchises
Manufacturer-Retailer (auto & gas)
= 70% of franchise sales Manufacturer-Wholesaler (coca-cola)
= 3% of franchise sales
Business Format (McDonalds, Hilton)
= 27% of franchise sales
Franchising in the Economy (1986)
last year Dept. of Commerce collected data
how has franchising evolved since then?

Franchisor Strategies
Advantages Of The Franchise Model
OPM expansion
franchise & royalty Fees
leverage IP assets
efficient market penetration
Disadvantages Of The Franchise Model
does not solve existing problems
initial development costs
entering a new business: new expertise
profile ‘problems”

Feasibillity Analysis
Is the concept franchise-able?
4 marketing P’s: product, price, promotion, place
Transferable PBS
operations manual(s), training program, IP
Management audit
management depth
management abilities
Written evaluation & ratings
operations, marketing, management, financial

Strategic Franchise Planning
Developing a franchise infrastructure
Protecting IP
Competitive positioning & pricing
Education & training
Field services & support
Franchise profile
Franchise marketing

Franchise Documentation
Operations manual(s)
Training program
Legal documentation
franchise contract, franchise offering circular
Franchise marketing materials
brochure, application, press releases, web page
Franchisor operations manual
Franchise registration application(s)

Dual Distribution & Expansion Strategies
Dual Distribution
mix of company owned vs. franchised
Expansion Strategies
exclusive territories; geographic scope
conversion franchising: Mrs. Fields Cookies (1990)
Snap On Tools (1991) Petroleum Stations (1930’s)
area development
master franchising - subfranchising
international franchising