Documente Academic
Documente Profesional
Documente Cultură
International Franchise Research Centre Special Studies Series Papers 1-16 Web Versions 2010 p.1
LIABILITY DISCLAIMER 10 London: A Capital City For Franchisee
Recruitment, (Mills, Stanworth &
The information and analysis in each report Purdy), 1997
is offered in good faith. However, neither the
publishers, the project sponsors, nor the 11 The Effectiveness of Franchise
author/s, accept any liability for losses or Exhibitions in the United Kingdom,
damages which could arise for those who (Chapman, Mills & Stanworth), 1997
choose to act upon the information or
analysis contained herein. 12 Franchising: Breaking Into European
Union Markets, (Stirland, Stanworth,
IFRC Special Studies Papers 1993-2001 Purdy & Brodie), 1998
5 The Blenheim/University of
Westminster Franchise Survey: A
Comparison of UK and US Data,
(Stanworth, Kaufmann & Purdy), 1995
6 Developing a Diagnostic
Questionnaire as an Aid to Franchisee
Selection, (Stanworth), 1995
7 Franchising as a Source of
Technology-transfer to Developing
Economies, (Stanworth, Price, Porter,
Swabe & Gold), 1995
International Franchise Research Centre Special Studies Series Papers 1-16 Web Versions 2010 p.2
INTRODUCTION present day and then to examine the specific
role and importance of the clearing banks
The last 2 decades have witnessed a involved in franchise lending throughout
metamorphosis in the scale and fortunes of Europe. Finally, issues relating to the future of
franchising in Europe (Abell, 1991; franchising will be examined.
Mendelsohn, 1992). For instance, when the
first serious research study of franchising in
Britain got underway in 1975, it was hampered HISTORY AND DEVELOPMENT OF FRANCHISING
by an almost complete absence of information
and statistics on what was still frequently seen A franchise relationship can take various
as a business marketing technique rather than forms and is often seen as having much in
an industry per se. In 1977, within a month of common with licensing. Typically, however,
the research study's publication (Stanworth, the relationship involves satellite enterprises
1977), the firms which formed the focus of the (run by franchisees) operating under the trade
study - Wimpy (fast food), Dyno Rod (drain name and business format of a larger
cleaning and hygiene services) and organisation (the franchisor) in exchange for a
Servicemaster (carpet and upholstery continuing service fee. The franchisee sets up
cleaning)- had joined with five other franchise his/her own business, operating along lines
companies to launch the British Franchise specified by the franchisor and trading in the
Association (BFA). product or service previously market tested by
the franchisor. The main advantage of
Since that time, membership of the British franchising to the franchisor is that it enables
Franchise Association has grown and now him/her to achieve national coverage for his/
embraces over 120 companies (including its her product or service more quickly. Most of
register of developing franchises) plus over 50 the necessary capital is put up by franchisees
affiliates, including professionals, banks and and the latter, being self-employed, are
consultants. The industry has developed its usually motivated to work hard in building up
own industry-specific exhibitions and their businesses which, at the same time,
publications, and the term franchising has ensures success for the franchisor.
been transformed in the public image from
being synonymous with ethically suspect The franchisee, on the other hand, gets the
business practices such as 'pyramid selling' to chance to run his/her own business, use of an
a bona fide business format with an important established tradename, prime rights to a
and legitimate role to play in a modern particular geographical territory where
economy. appropriate, head office advice and
administrative backup, plus the benefits of
Possibly the franchise industry's single most continuous market research and product or
impressive breakthrough has been its service development.
acceptance by banks in Europe. For instance,
in 1981 in Britain, the National Westminster Franchising is frequently seen as a relatively
(NatWest) Bank and then Barclays appointed recent phenomenon imported from the United
franchise managers to co-ordinate their States but the real pioneers of modern
activities in the franchise field. Lloyds franchising were almost certainly the British
appointed a franchise manager in 1982 and brewers of the 18th century who created a
the Midland had a manager with special system of 'tied' house agreements with their
responsibility for franchising in post by the end publicans which remains widespread to this
of 1983. However, it has been the NatWest day. It is true, on the other hand, that
Bank which has undertaken the essential franchising is today economically more
pioneering role in financing British franchising important in America. Franchise activities in
and has lent over £250 million to franchisees/ the United States now account for around
licensees through its centralised Franchise one-third of all retail sales and 10 per cent of
Section. gross national product. It is estimated that, in
America, there were around 492,000
It is the intention of this article to outline the franchise outlets in 1989 (including nearly
historical development of franchising up to the 95,000 franchisor operated) with a combined
As yet, there exists no centralised statistical Here the manufacturer is the franchisor and
intelligence gathering machinery in Europe to the franchisee sells direct to the public. The
match that operated via the US Department of franchisee may operate the franchise as his/
Commerce up until the late 1980s. However, her sole business concern or, alternatively, as
non-government estimates indicate that, an activity within an existing business. Car/
taking into account the fact that European truck dealerships and petrol service stations
countries are individually substantially smaller are examples and these cover a large
in population than the United States, the proportion of franchise activities overall (they
imbalance in the extent of franchising in account for around 28 per cent of all outlets
Europe is not as great as is sometimes and 66 per cent of franchise sales in the
supposed. For instance, the number of United States).
franchised outlets in the United Kingdom
alone was estimated as long ago as 1984 The Manufacturer-Wholesaler Franchise
(Stanworth, 1984) at around 80,000. This
included retail petrol outlets, tenanted public The outstanding example of this type of
houses and voluntary group wholesale-retail franchising is the soft drinks industry
franchises operating in areas such as food dominated by Coca-Cola, Pepsi-Cola and
retailing and photography. This estimate of Seven-Up who franchise to independent
80,000 includes most areas of activity likely to bottlers which, in turn, serve retail outlets.
be encompassed in US official estimates of
franchise industry size. The Wholesaler-Retailer Franchise
A more recent estimate including full business The best-known examples here are the
format franchising together with associated 'voluntary' groups in grocery retailing where
sectors in franchised motor dealers, the the wholesaler (the franchisor) supplies
tenanted licensed trade, and petrol forecourts, products to the retailer (the franchisee) who is
indicates a total value for the franchising signed up on a voluntary franchise basis.
related sector in excess of £40 billion, or 29 Examples are Spar, Mace, VG, Londis, etc.
per cent of total retail sales, achieved through
74,000 outlets (The NatWest/British The Trademark, Trade-name, Licensor-Retailer
Franchise Association Franchise Survey
Franchise
1992, 1993).
This is the franchise sub-group that has grown
Annual sample surveys aimed at estimating
so remarkably quickly over the last three to
the size of the franchise industry in Britain and
four decades (especially in the United States)
restricted largely to the growth area of
and is still developing on an international
'business format franchises' (thus excluding
basis. The franchisor, who may not be a
most of the businesses mentioned in the
manufacturer, has a product or service to be
above paragraph), indicate that there are
marketed under a common trade-name by,
currently around 370 franchises with 18,000
usually, standardised outlets. This sub-group
outlets, employing 170,000 people and turning
approximates to what are often now known as
over something in the region of £4.5 billion per
'business format' franchises which have a
annum (The NatWest/British Franchise
high service element and are based on the
Association Franchise Survey 1992, 1993).
'cloning' principle, for example, fast food, fast
print services, cleaning and related hygiene
Since franchises often differ so greatly from
services, car-hire, car tuning, etc.
one another, it is useful to form them into
sub-groupings after the fashion originally
The underlying strength of franchising,
suggested by leading American expert,
combined with the cross-national drive for
Charles Vaughn (1979):
self-employment opportunities, goes a long
way towards explaining the ready
internationalisation of many franchises. The
American fast food giants come most
These figures were compiled from a range of sources and exclude sales of Cars,
Trucks, Gasoline and the Soft Drink Bottlers.
Denmark 8 25 N/A
- - -
Portugal - - -
(100) (1,100) ($0.39bn)
Denmark, Greece, - - -
Spain & Norway (675) (10,000) ($1.3bn)
Denmark Eire Finland France Greece Holland Italy Norway Sweden U.K.
Number of Major Banks 3 4 5 4 5 4 14 4 5 5
Perceived General Level of Poor Fair Poor Good Poor Good Poor Poor Poor Good
Franchise Knowledge in
Major Banks
Banks Generally Supportive ✗ ✓ ✗ ✓ ✗ ✓ ✗ ✗ ✗ ✓
of Franchising ?
N.B. It is believed that there are no Bank Affiliates nor Specialist Units in banks in Germany, Austria, Switzerland or Portugal. Spain has no Franchise Trade Association.
02_TABL3.PUB
interest in the majority of European countries colleges of Britain and their counterparts
which needs to be addressed if franchising is abroad. Given the flexibility of the franchise
to reach its full potential in Europe. concept for movement across national
boundaries, it is important that this initiative be
THE FUTURE OF FRANCHISING IN EUROPE based on an international perspective.
The growth of franchising in Europe during the Finally, we come to the legislative aspect of
1990s appears set to continue, despite franchising and here current trends are
setbacks in the recent recession. A number of hopeful. On a number of occasions recently,
factors appear to be at play here. First is the in locations as far apart as America, Australia
general world-wide decline of traditional and the European community (EC), the issue
manufacturing industry and its replacement by of the legal framework surrounding franchise
service-sector activities. Franchising is operations has come into question. What has
especially well suited to service and people- tended to happen here is that the early fears
intensive economic activities, particularly of franchisors - that over-zealous legislators,
where these require a large number of with only an imperfect understanding of
geographically dispersed outlets serving local franchising, would force through inappropriate
markets. legislation - have not been realised.
A second factor is the growth in the overall In the United States, legislation has tended to
popularity of self-employment. Most be patchy and sometimes highly erratic,
governments in the Western world are looking varying on a State by State basis. In Australia,
towards self-employment and small business representations made to government by
as an important source of future jobs and, in franchisors appear to be bearing fruit and
Britain, over the last 15 years, the proportion likewise in Europe. For instance, the EC has
of the labour force in the self-employed sector published a block exemption regulation. This
has increased from around 7 per cent to is designed to allow franchising exemption
around 12 per cent (Daly and McCann, 1992). from competition laws framed for different
kinds of business. These have, on occasions,
As franchising becomes increasingly well threatened to encompass franchises as a
known and understood, it is likely to appeal to result of separate legal entities within a given
a growing number of people. Alongside this franchise operation co-operating (thus
trend, we may expect to see an increase in appearing to act in restraint of trade). The
the number of franchise opportunities. This most recent EC initiative will allow franchisors
process will be assisted, not least, by large to grant franchisees territorial immunity which
companies following the current trend towards appears quite logical given the original
divestment from centralised control of an intentions of the relevant legislation.
increasing proportion of their business
activities. A notable example in Britain has
been the franchising of domestic milk-delivery REFERENCES
in the United Kingdom (Fulop, 1989; Boyle,
1994). ABELL, M. (Ed.) (1991)
European Franchising, Waterlow Publishers,
Despite the rapid increase in the number of
business schools and college management ACHESON, D. (1991)
centres running undergraduate and graduate Franchising in the Economy, IFA Educational
courses on small business and Foundation Inc./Stoy Hayward
entrepreneurship, the potential of franchising
as a viable business option has generally BOYLE, E. (1994, forthcoming)
been overlooked. It is likely that the future will The Rise of the Reluctant Entrepreneurs,
witness the development of a growing liaison International Small Business Journal, Spring
between the worlds of franchising and
management education with a view to DALY, M. & McCANN, A. (1992)
integrating the topic of franchising fully into How Many Small Firms ?, Employment Gazette,
teaching programmes in the universities and February
FULOP, C. (1989)
The Effect of Changing Channels of Distribution in
the Market for Liquid Milk in the UK, Fifth
International Conference on Distribution - Vertical
Relationships and Distributive Trades, Bocconi
University, Milan, Italy
STANWORTH, J. (1977)
A Study of Franchising in Britain: A Research
Report, University of Westminster
STANWORTH, J. (1984)
A Study of Power Relationships and their
Consequences in Franchise Organisations,
University of Westminster
STANWORTH, J. (1991)
Franchising and the Franchise Relationship in the
European Community, in Abell, M., op. cit.
STERN, P. (1987)
Presentation Given to the 27th Annual International
Franchise Association Convention, Acapulco
John Stanworth is the director of the The International Franchise Research Centre
International Franchise Research Centre (I.F.R.C.) is committed to improving the
and has been engaged in research into understanding of franchising. This is achieved
franchising since the mid-1970s. He also by the publication of impartial research and by
leads the Future of Work Research Group, the encouragement of informed debate.
based at the University of Westminster, which Membership is suitable for anyone with an
has a record of specialist research in interest in franchising and further details are
Teleworking, Small Business Development available from the address on the rear cover.
and Human Resource Management. Studies
have been undertaken for many clients,
including The Department of Trade & SPECIAL STUDIES SERIES
Industry, The Department for Education and
The Economic & Social Research Council. Papers in the Special Studies Series are
supplied free of charge to I.F.R.C. members
Peter Stern is the Senior Franchise Manager and are published a minimum of four times a
for the National Westminster Bank plc, year. They report upon a range of issues
London, and has been actively involved in which are felt to be of interest to the
franchising since the mid-1980s. franchising community. Subject matter
includes the findings of surveys of franchisors,
franchisees, and potential franchisees, and
also special interest matters, such as finance
for franchising.