Some have called franchising the greatest business model even invented. Whether or not you agree, you must admit that franchising history traces its roots far into the past. The concept, although not necessarily viewed as a business, was born early and has since flourished. A franchising history is an interesting study, and this brief panorama will provide the interesting highlights.
Franchising History: Origin and Definition
The word “franchise” traces back to Middle English, where it denoted a grant of legal immunity. It is combined from the Old French word, franche ‘free,’ based on the franc; and the English word ‘frank,’ meaning honest or straightforward. The combined word as we understand it dates from the late 18th century.
There are several different definitions of “franchise.”
- An authorization granted by a government or company to an individual or group enabling them to carry out specified commercial activities.
- Arrangement where one party (the franchiser) grants another party (the franchisee) the right to use its trademark or trade-name as well as certain business systems and processes, to produce and market a good or service according to certain specifications.
- A franchise is a type of license that a party (franchisee) acquires to allow them to have access to a business’s (the franchiser) proprietary knowledge, processes, and trademarks in order to allow the party to sell a product or provide a service under the business’s name.
- A continuing relationship in which a franchisor provides a licensed privilege to the franchisee to do business and offers assistance in organizing, training, merchandising, marketing and managing in return for a monetary consideration. Franchising is a form of business by which the owner (franchisor) of a product, service or method obtains distribution through affiliated dealers (franchisees).
- The right or license granted to an individual or group to market a company’s goods or services in a particular territory; also a business granted such a right or license.
Franchising History: An Overview
The Middle Ages is where the idea of franchising originally surfaced. Local governments, typically medieval fiefdoms, granted high church officials and other wealthy landowners a license to maintain order and assess taxes on the surrounding population. These early franchisees paid a fee to the governments in exchange for protection, mainly from angry citizens who were forced to pay high tax rates. These “franchise” regulations eventually became part of European Common Law.
The Colonial Period
The colonial period saw the rise of franchising where a local sovereign would allow certain individuals “rights” to hold markets and goods fairs, run ferries, or even hunt game on his territory. European monarchs even granted franchise-type licenses to citizens who agreed to establish colonies. Once a colony was created, the founder was able to gain the protection of the “Crown” in exchange for taxes or royalties.
During the 1840s, a beer brewer in Germany with the brand name ‘Spaten’ granted rights to several local taverns to sell their beer. However, the tavern owners had to use the Spaten trade name. The tavern owners were essentially franchisees, because they had to pay for the right to use the trade name, which still exists today.
Early American Origins
The first franchise in America is widely debated, but two individuals stand out from the rest as the likely frontrunners, although one view even traced American franchising history back to Benjamin Franklin, and the beginning of his printing partnerships in 1731.
Sewing machines began to appear in the middle 1800s, but they were still slow, cumbersome tools. Isaac Singer, founder of I.M. Singer & Company, patented a sewing machine that could sew 900 stitches per minute. Clothing factories were miserable places to work, where sewing was done by hand in terrible conditions. Housewives did a lot of sewing, too, for their families.
Singer sewing machines sold for $120 each, a tidy sum for that day. But, one of Singer’s partners arranged for the first-ever payment installment plan in order for more families to be able to purchase a sewing machine. With an easy payment plan in place, Singer now entered the business world of franchising. He found people who wanted to sell Singer sewing machines, then trained and licensed them to sell in certain geographical areas.
Another American franchise pioneer was Martha Matilda Harper. Many believe that the franchise system she created birthed many of the elements we now expect in a modern franchise relationship. She provided her franchisees with initial and ongoing training, branded hair care products, field visits, advertising, group insurance, and motivation. Her approach to developing a support system for her franchisees and branding her salons is an integral part of franchising today.
Harper founded her salon business in 1888, licensed her first franchise in 1891, and grew the system to over 500 salons and training schools. Following her retirement and death, the Harper Method Shops were acquired in 1972 by a competitor and closed.
The Turn of the Century
The creation of automobiles changed everything in America. As consumers became interested in automobiles, Henry Ford, who had just pioneered mass production by assembly line, needed to find a good way to distribute his product. Mail-order catalogs and door-to-door salesmen were tried for a time, but were not very successful.
A new distribution method was the automobile dealership. In 1896, William Metzger opened the first independent automobile dealership in Detroit, Michigan, for electric cars, under the brand name Waverly. Henry Ford and others saw its success and adopted the distribution system. They now had an automobile franchise network. And soon, automobile franchises were appearing everywhere.
Other Franchises from the Automobile
As many cars were sold and roads became paved, the automobile revolution took hold. This meant that all these new machines, and their drivers, would need to purchase things along the way. Like gasoline and oil for the car. And food for the family as they traveled. Over time, gas stations and fast food enterprises began springing up everywhere.
Franchising saw its first real boom in the post-war 1950s and 1960s. Fast food, laundry services, dry cleaners, hotels, and rental car franchises flooded the marketplace. McDonald’s opened 1,000 units in just 10 years. Midas Muffler reached 400 locations. Holiday Inn grew to 1,000 locations. Budget Rental Car topped 500 franchises, all during the same decade.
Franchising History: Today’s Market
After a few decades of cooling and oversaturation, franchising underwent some changes and began a successful comeback during the late 1980s and early 1990s. This growth continues today. According to Franchising.com, there are over 744,000 franchise businesses in the US. These businesses support nearly 7.6 million direct jobs, and yield $674.3 billion of economic output for the U.S. economy (2.5% of the U.S. Gross Domestic Product).
For more information about how you can invest in a franchise business, or expand your existing business rapidly through franchising, contact Franchise Guardian today.