FRANCHISING

Post-World War II Boom

Franchising initially became popular in the 1920s, especially with automobile manufacturers, oil companies, and restaurants setting up outlets, but the major franchise boom took place after World War II. In the mid to late 1940s thousands of veterans returned home to the United States with the notion of being their own boss. Although big business dominated major sectors of the economy, the tradition of small-business ownership remained very strong. Franchising, in effect, combined the benefits of both large and small business. Under the terms of an agreement the franchisee was a legally independent business (most often a small business) separate from the franchising company. The contract generally specified that the individual acquiring the franchise pay an initial fee, sell only specific products, conduct business in a certain manner, and often cede the franchiser a certain percentage of gross sales. For the small-business owner there were several advantages: a smaller initial investment was needed; training and advertising were provided by the parent company; and usually one was selling a product with a national, or at least regional, reputation. The strong desire to be an independent businessperson, combined with large companies' desires to distribute their products as cheaply as possible, led to a rapid expansion of franchises. By 1967 sales from franchise outlets accounted for 10 percent of the GNP.

McDonaldization of America

The franchising explosion was led by Ray Kroc and his McDonald's chain. By the late 1950s Kroc had hit upon a formula for success. His restaurants featured spotless kitchens, an assembly-line process for making standardized food—hamburgers, french fries, and soft drinks—consistent quality, speedy service, and low prices. Training for franchise owners was provided at what was called Hamburger University, and franchisees were held to strict requirements regarding food quality, store appearance, and cleanliness. By 1980 there were over sixty-five hundred McDonald's outlets with sales over $6.2 billion. So successful was McDonald's that its system became the model for other fast-food franchisers (Domino's Pizza, for example) to follow.

Beyond Fast Food

By the 1960s franchising had moved well beyond fast food. Franchise operations now provided people with a wide variety of services ranging from renting moving equipment (U-Haul outlets), preparing taxes (H & R Block), or repairing cars (Midas Muffler shops). One franchise that took off in the 1960s rode the electronics boom to success. By middecade the electronics business had become the nation's fifth largest industry, turning out such products as televisions, radios, stereos, appliances, and high-technology equipment for the Defense Department. Charles Tandy, a Fort Worth, Texas, businessman, believed there was a huge market for electronics, and in 1963 he purchased the nine existing Radio Shack stores. He then began to sell franchises nationally. Placing the outlets in suburban malls as well as small towns and cities, Tandy provided electronic goods with a high turnover and high profit margins. Growth was rapid, and by 1980 there were seventy-five hundred Radio Shack stores, outnumbering the ubiquitous McDonald's restaurants.