A brief History of Franchising
How did franchising become the incredibly successful business model that it is today? This is certainly a frequently asked question! Learn more about the origins of franchising.
Many historians argue that the formation of franchising began much earlier than Isaac Singer and his sewing machine. They claim that the concept originated with German brewers who granted franchising rights to certain taverns, entitling them to sell their ale under the trade name Spaten.
However, franchising as we know it today blossomed with the Singer Sewing Center, developed in New York by Isaac Singer in 1858. After he had invented the sewing machine, Singer encountered two problems when he took it to the market. The first was that customers had to be taught how to use the new invention before they would buy it. The second was that Singer did not have enough capital to manufacture his machine in large numbers. He then came up with the idea of selling the rights to local business people to sell the sewing machine and train those who bought it. Once he embarked on this route, his enterprise expanded rapidly. Fees earned from the licence rights helped to fund his manufacturing costs and, because each franchise was self-financed, Singer was able to tap into the entrepreneurial attributes of his franchisees. Isaac Singer was the first to mass license his product, and he made millions of dollars for himself and his franchisees.
Drinks franchise – Coca-Cola
This franchise model was copied in several industries. Coca-Cola was able to expand throughout the United States by shifting the burden of manufacturing, storing and distributing its product to local business people who acquired bottling rights.
Car manufacturers who had been spending enormous amounts of capital tooling their assembly lines found they could develop retail distribution networks using capital provided by independent dealers.
Oil companies such as Standard Oil and Texaco granted franchises to convenience stores and repair mechanics across the US.
Fast Food Restaurants
In the 1950s, Ray Kroc saw the potential in franchising a hamburger stand. The franchise system accelerated with the rise of fast food restaurants in the 50s, with McDonald’s being the most successful. Franchising has been cited by industry analysts as the motivating force driving the US economy in the early 1930s and late 1950s, helping America recover from an economic slump and boosting the country’s national and international economic relations.
According to the British Franchise Association, in the UK today:
- The franchise industry contributes £17 billion to the economy.
- There are 1,000 brands operating in a variety of sectors such as coffee, cleaning and home care.
- 710,000 people are employed by the franchise industry.
- There are a total of 48,000 franchise outlets in operation.
- 93% of new franchise businesses are enjoying a healthy profit.