History of Franchising
Where does the word Franchise originate from? The word “franchise” is of Anglo-French derivation, from franc, meaning free, and is used both as a noun and as a (transitive) verb.
Difference between Franchisor and Franchisee?
Franchisor is the business that can replicate their business model. Franchising is based on a marketing concept which can be adopted by an organization as a strategy for business expansion. Franchisee is the business that replicate the business of the franchisor. Where implemented, a franchisor licenses its know-how, procedures, intellectual property, use of its business model, brand, and rights to sell its branded products and services to a franchisee. In return the franchisee pays certain fees and agrees to comply with certain obligations. For the franchisor, use of a franchise system is an alternative business growth strategy, compared to expansion through corporate owned outlets or “chain stores”.
Most business historians date the beginning of franchising as a concept to the Middle Ages when feudal lords initiated the practice of selling to others the rights to collect taxes and operate markets on their behalf.
In 19th Century England and Germany, pub proprietors with financial difficulties became exclusive distributors of beer purchased from specific brewers. The breweries did not exercise any day-to-day control over the pubs.
Until recently, most articles about the history of franchising in the United States began with a claim that “Albert Singer” was the first commercial franchisor in the United States. As it turns out, John “Albert” Singer was only seven or eight years old when his father, Isaac Merritt Singer, founded the I.M. Singer & Company in 1851 – and at no time in its long history did the Singer Manufacturing Company ever franchise.
1890s, Coca-Cola chose to franchise the rights to bottle its carbonated beverage to many independent businessmen who received exclusive territories in which to distribute the product in return for paying for and assuming the risk of, distributing the product.
That distinction might be reserved for the pioneers in the American automobile industry, which began to franchise at that time. Both Ford and General Motors began to franchise dealerships to independent businesspeople to sell cars under their brand names to end users because the companies did not have sufficient funds to create the needed retail outlets when they first began operations.
The major oil companies began to offer independent repair stations the right to use their trademarks in the 1920s. The earliest retail franchisor is Ben Franklin stores, which started in 1920 and began to franchise around that time. The earliest fast-food franchise was A&W® Root Beer, established in 1924, with Howard Johnson® being the first to franchise restaurants in 1935. An early pioneer in service franchising was Arthur Murray® Dance Studios, which got its start in 1938.
Franchising really took off as a form of business in the 1950s and 1960s, when many of the current large franchise chains, businesses such as Tastee-Freez®, KFC®, McDonald’s, and Burger King®, were established.
The acceleration of franchising in the 1950s and 1960s can be attributed largely to two factors: the rise of television advertising and the establishment of the national highway system. The former made national advertising a viable way to build a brand name. As a result, for the first time, it became possible to have a national chain whose competitive advantage was based on a recognizable name.
In South Africa, the Steers idea came to George while he was on holiday in the United States in 1960. Halamandaris decided that he would bring the concept and updated method of restaurant and fast-food catering to South Africa, which resulted in the first “real” steakhouse in the country, Spur. In 1983 Steers launched a new franchise program and in 1994 the company listed on the Johannesburg Stock Exchange under the name Steers Holdings Limited. Today Steers has 522 stores around the world.
The 1970s were an important time for franchising as they saw the birth of a truly iconic South African retail franchise Shoprite. The first Shoprite was founded in 1979 in Cape Town when a number of small supermarkets were purchased for a price of R1 million. The first branch outside the Western Cape was opened in 1983. In 1990, Shoprite opened its first store outside South Africa in Namibia.
Chicken Licken, a popular fast-food fried chicken chain was opened in Johannesburg in 1982. It has over 200 stores in four African countries. Another well-known chicken franchise chain is Nando’s which was also established in the 1980s.
In 1987 Nando’s was established by Fernando Duarte, a Portuguese man who had immigrated to South Africa with his family. Nando’s opened its first store in the UK in 1992.
Debonairs pizza was established in 1991 by two university students. One of those students was Craig Mckenzie who operated from a family bakery in Pietermaritzburg. Another franchise that was established in the 1990s was Mugg and Bean. The first store was opened in 1996 on Cape Town’s Waterfront. Today Mugg and Bean operates in five countries around the world including the United Arab Emirates and Saudi Arabia.
The current government is of the view that every established business should be franchised to create an opportunity for the emerging market. Franchising is the choice of expansion methods utilized by businesses worldwide.
Robin van Rensburg