Sep 27

Franchising – is it new? No…

Although franchising is mistakenly thought to be a twentieth century innovation, the concept has its first beginnings in the European feudal systems of the middle ages. When landowners began granting rights to peasants to use land in exchange for a fee and part of the profits, they were actually practicing a system that would evolve into franchising.

The franchise concept was further refined in the nineteenth century when German brewers allowed pubs to use the brewer’s name to sell beer. The word “franchise” is of French origin, and basically means “a right or privilege.” A franchisee is granted the right or privilege to use the franchisor’s system, products and trademark.

The popular form of franchising we are familiar with today came into being in the 1950s, and was known as the “Business Format Franchise.” It became an acknowledged business method that reduced risk and allowed the franchising company to grow quickly, and enabled the franchisee to buy a business based on a proven system.

One of the first well-known modern franchises introduced in the UK in the 1950s was the hamburger chain Wimpy. Many American franchises also got their European starts in the UK simply because of the common language. ServiceMaster, a Chicago-based upholstery and carpet cleaning franchise, sold a Master Franchise Licence for Europe in 1958. Two other franchises, Mr Softee and Lyons Maids, were also introduced in Europe during the 1950s. Although franchising took off in the 50s, the trend slowed in Europe during the next decade due to economic pressures and pyramid scheme allegations that tarnished the image of franchising.

KFC opened its first overseas unit in the UK in 1964. During the 1970s, several big name franchises, such as McDonalds, began opening stores in Europe. It was during the latter 1980s and early 90s that franchises really grew widespread in Europe. Companies such as The Body Shop, McDonalds, Tie Rack, Jani-King, Dominos, and Burger King all opened multiple franchise units in different countries across the continent.

In the 21st century, franchising has become an important part of many European economies. For instance, in the UK, the franchise industry grew twice as fast as the overall economy in 2006; and increased by 44 percent over the past decade, accounting for about ?10.8 billion annually in sales.

The International Franchise Association currently cites Western Europe as one of the best places for international franchise development. And the world’s largest franchise agrees — Europe now produces more revenues for McDonalds than any other region, including the US. In 2007, McDonalds earned close to $9 billion US in Europe, compared with less than $8 billion in the US. The company is predicting this year’s sales growth in Europe to be approximately nine percent, more than twice the expected US sales growth.

The future of franchising in Europe looks especially bright and varied as more companies recognise the value of the franchise concept, and entrepreneurial individuals continue seek out opportunities to own a business backed by a brand name.

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