History of Franchising
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In its earliest form, franchising first appeared in the UK with the advent of the tied pub system. However, franchising became more widely used in the US. First came the car dealership model pioneered by General Motors in the early 1900s, granting exclusive rights and territories. Then, oil companies and grocery stores began to take advantage of a business model that offered them a route to fast growth towards national distribution – but with reduced risk.
Business Format Franchising
After the Second World War, franchising grew rapidly driven by soft drinks giants such as Coca-Cola and Pepsi who developed a franchise system whereby their franchisees carbonated and added water to centrally-manufactured and distributed highly-secretive syrup recipes, bottling and selling it locally.
Business format franchising was firmly established as a distinct business model and proven system in the 1950s. in 1961, Ray Kroc, one of the McDonald brothers, opened the first restaurant in their name in Des Plaines, Illinois and purchased the brand outright to which the huge growth in this modern system of franchising can be attributed.
In the 1950s and 1960s franchising boomed with huge growths in population, economic output and social change. Franchises also began to appear internationally including in the UK for the first time. Catering companies led the way.
Food giant J Lyons & Co (Wimpy, Lyons Maid and Mr Softee) led the way. ServiceMaster, a major international franchise business today, began franchising in the UK in 1959. By the mid-1960s some of the largest fast-food brands had become well-established international franchises, led by McDonald’s and KFC.
However, by the 1970s, franchising in the UK slowed. This was due partly to the faltering economy – but more because of the damage done to its reputation by non-franchise systems such as pyramid schemes who had, falsely, described their businesses as franchises. However, they were really based on false promises of lucrative returns on investment, which rarely came to fruition, and many pyramid schemes collapsed and are now illegal in many countries.
Birth of Ethical Franchising
By the end of the 1970s, eight of the largest franchise brands in the UK – ServiceMaster, Dyno-Rod, Holiday Inns UK, Kentucky Fried Chicken, Wimpy International, Ziebart GB, Prontaprint and Budget Rent a Car – realised they had to do something to differentiate their ethical business practices from illegal pyramid and other schemes. So, in 1977, the British Franchise Association (bfa) was formed.
With no set standards in the UK, the industry created its own regulatory body to accredit a company’s suitability for membership based on strict criteria related to operational practices, business procedures, franchise agreement terms – and the support offered to franchisees.
These founding members and the bfa’s early work on business ethics restored credibility to the business model and, with the economic boom of the ’80s and ‘90s, new brands came into UK franchising which are household names today.
During this time, the Association recognised that, to be more representative of a growing industry, we should accept professionals with specific expertise and experience in franchising as Affiliate Members. Recently, the bfa has opened up membership to include franchisees of bfa accredited member networks, and suppliers.
Franchising is now a flourishing industry boasts nearly 1,000 brands in a multitude of different sectors. Nowadays it’s an eclectic mix of businesses encompassing everything from hairdressing to photography, pet care to children’s sports coaching.
Franchising has never been in better health than it is now. The authoritative annual research into the state of the industry – the universally respected bfa/NatWest Franchise Survey – has shown both short- and long-term growth trends to be very strong in the sector – including prior to and since the economic downturn in 2008.
After a slight downturn in that year, every year following has shown growth in terms of numbers of brands franchising, numbers of franchisees, numbers employed in franchise businesses and the overall turnover of the franchise sector.
These figures, combined with impressive trends going back to before the turn of the century and uninterrupted by the recession, consistently show around 90% of franchisees reporting profitability and less than 4% of franchise businesses failing for commercial reasons each year.
Those statistics compare favourably to figures estimating that between half and two-thirds of all independent start-ups close within their first three years. It’s clear that the advantages inherent within a franchise business – including economies of scale and support of a large brand combined with local marketing and business owners – make them particularly robust and, statistically, much more likely to succeed.
One of the most important changes in franchising took place in 2012 with the advent of Franchisee Membership to the bfa. For the first time, franchisees were given the opportunity for direct representation on the Board of the bfa, and therefore can contribute to the future evolution and governance of their industry. It was the first membership scheme of its kind for any franchising association in the world. It now ensures that all stakeholders of ethical franchising can continue to move the UK industry forwards as it grows further in size, stature and importance to the economy.
From its feudal roots to becoming one of the fastest-growing sectors of the UK economy, franchising has come a long way. With many more people now taking charge of their careers and family life by running their own business through franchising.