Chapter 3

The Hybrid
Franchising

© 2009 by Prentice Hall 3-1

 A franchise is a system of distribution that
enables a supplier (the franchiser) to arrange
for a dealer (the franchisee) to handle a
specific product or service under certain
mutually agreed on conditions

© 2009 by Prentice Hall 3-2

 When a product is franchised, the franchisee
receives the goods from the franchisor and
sells them through a wholesale or retail outlet
◦ Illustration: an auto dealership
 When a service is franchised, the franchisee
receives a license for a trade name and the
particular services to be sold
◦ Examples: Merry Maids, UPS Store

© 2009 by Prentice Hall 3-3

 Top 10 Franchises for 2007
1. Subway
2. Dunkin’ Donuts
3. Jackson Hewitt Tax Service
4. 7-Eleven Inc.
5. UPS Store/Mail Boxes Etc.
6. Domino’s Pizza
7. Jiffy Lube International, Inc.
8. Sonic Drive In Restaurants
9. McDonald’s
10. Papa John’s International, Inc.

© 2009 by Prentice Hall 3-4

 Definition: The conversion of independent,
ongoing concerns into franchise-systems
members

© 2009 by Prentice Hall 3-5

 The franchisee will
1. Make a financial investment in the operation
2. Obtain and maintain a standardized inventory
and/or equipment package usually purchased
from the franchisor
3. Maintain a specified quality of performance
4. Pay a franchise fee as well as a percentage of the
gross revenue
5. Engage in a continuing business relationship

© 2009 by Prentice Hall 3-6

 The franchisor provides
1. The company name
2. Identifying symbols, logos, designs, and facilities
3. Professional management training for each
independent unit’s staff
4. Sale of specific merchandise necessary for the
unit’s operation at wholesale prices
5. Financial assistance
6. Continuing aid and guidance

© 2009 by Prentice Hall 3-7

 More than half a million franchise businesses
exist in the United States alone, employing
more than 9.8 million

© 2009 by Prentice Hall 3-8

 Franchised businesses accounted for $803
billion in annual sales
 Franchises represent 42% of all U.S. retail

sales
 Franchise sales equal 20% of the gross

national product
 Franchises directly employ 9.8 million people
 There are more than 600,000 franchised

establishments in the United States

© 2009 by Prentice Hall 3-9

1. Training and guidance are provided by the
franchisor
2. The franchise offers brand-name appeal
3. The track record of the franchisees shows
proof of success
4. Financial assistance can be secured from the
franchisor

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1. Franchise fees
2. The control the franchisor exercises
3. Unfulfilled promises of some franchisors

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1. The basic franchising fee
2. Insurance
3. Opening product inventory
4. Remodeling and leasehold improvements
5. Utility charges
6. Payroll
7. Debt service
8. Bookkeeping and accounting fees
9. Legal and professional fees
10. State and local licenses, permits, and
certificates

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 Learn of opportunities
 Investigate the franchisor
 Seek professional help

The Decision: It’s up to the entrepreneur

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 Internet franchising
 Globalization of franchising
 Home-based franchises
 Rural franchises

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1. Developing a franchise business
2. Selling franchises
3. Servicing franchises
4. Learning more about running the franchised
business so that you can make it worthwhile
for your franchisees to stay with you

© 2009 by Prentice Hall 3-15