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Essentially franchising is a very specific method or way of distributing goods and services. It has been around in one form or another since man first began to engage in commercial enterprise. It has evolved from a simple grant of a right or privilege in the middle ages to the sophisticated business format franchise concept of today.
There are a number of different types of franchising. The type that developed early on was the product franchise wherein a manufacturer granted a franchisee the right to sell its products, i.e. car dealerships and service stations. Another type of franchise that developed in the U.S. was the name and process franchise. This format allows the franchisee to use a special process, or recipe and to use the franchiser’s name. Originally Kentucky Fried Chicken was structured this way, as was One Hour Martinizing.
Modern day franchising is primarily in the business format mode. This type of franchising not only grants the right to use the name and sell the products or services of the franchiser but it also involves the transfer of the total way of doing business that has been developed by the franchiser. Specifically, the franchiser transfers all its operating systems, technical expertise, marketing systems, training systems, management methods and essentially all relevant information, to the new franchisee. The franchiser also trains the new franchisee extensively up front and provides ongoing training and support throughout the life of the franchise agreement.
Business format franchising is what franchising is all about today and is essentially why franchising is the most successful method of distributing goods and services in the economic history of the planet Earth.
McDonald’s best epitomizes the incredible power of franchising. Over time McDonald’s learned how to absolutely maximize the sales potential of a fast food outlet. Their concept is one with a very high degree of systemization. McDonald’s has an idiot proof system for every aspect of their business from exactly how many seconds the french fries are cooked to the exact words the employees use when addressing the customers. McDonald’s leaves nothing to chance or employee discretion, there is a McDonald’s way for everything and everything is done the McDonald’s way.
The core of their business is the strict adherence to QSC, or Quality, Service and Cleanliness. Over time McDonald’s developed a superb training program, which absolutely insured that every franchisee would implement their systems 100% of the time. Further they developed a unique relationship with the franchisees, which is based on the fact that McDonald’s owns the land and building for all the franchise units. They in essence rent the business to the franchisee for a percentage of the gross sales of the unit.
The beauty of this concept is that the interest of the franchisee and McDonald’s are absolutely intertwined, the better the franchisee does, the better McDonald’s does. McDonald’s doesn’t sell anything directly to the franchisees. All of McDonald’s products are sold to the franchise by specified vendors. This way there is never a conflict of interest whatever is good for one is good for the other.
Further, McDonald’s has a very strong franchise agreement that is biased in favor of McDonald’s, which is as it must be. If a franchisee doesn’t adhere to McDonald’s high standards, McDonald’s has the contractual power to force the franchisee out of the system. McDonald’s has never hesitated to do this if a franchisee has failed to bring it’s unit up to the high standards of QSC required after being duly warned to do so.
McDonald’s is incredibly successful because it has implemented the business format franchise model to near perfection. This is franchising in essence, the perfection of a business concept and the transfer of the knowledge acquired through the process of reaching that perfection and a follow up mechanism that insures that the systems and procedures are properly executed over time.
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