Franchising has been around for more than 70 years now, but the term didn’t come about until after World War II. Franchises have evolved a lot in that time, with franchising being a thriving industry today. The history of the franchise industry will offer lessons on how to develop and create your own successful business.,
The “history of franchising pdf” is a document that gives an overview of the history of franchising. It was written by William J. Baumol and William G. Bowen, who were economists from Princeton University in the United States.
The franchise business model has been dubbed the best business plan ever devised. It has made it possible for individuals all over the globe to start their own enterprises. But how did it all start? What is the history of franchising?
The solution to that query, as well as a chronology of franchising history, are provided below.
Let’s take a break from the history of franchising as we know it to look at the definition of the term franchise.
There are various dictionary meanings of “franchise,” however we’ll concentrate on the following: An person or group is given the right or license to promote a company’s products or services in a certain region; a corporation is also awarded such a right or license.
A franchise is a unique business model with a fascinating history.
During the Middle Ages,
As bizarre as it may seem, the business strategy of franchising first appeared in the Middle Ages.
Being a human during the Middle Ages was not easy. There were hundreds of famines, notably in Europe, where The Black Death pandemic killed a third (or more) of the population. Working-class people who didn’t believe they were being paid a fair salary often organized violent revolutions. Serious religious disputes added to the widespread unhappiness of the historical period.
But, despite all of the everyday misery, one great thing happened: franchising.
During that time, some local governments handed prominent church officials (and others deemed significant) the authority to keep order and collect taxes. These persons were granted the ability to host markets and engage in economic operations by medieval courts (or lords). The earliest franchisees paid a fee to the lords in return for “protection” that was basically a monopoly on commercial enterprises, among other things. The rules that regulated the first franchisees eventually became part of European Common Law.
Period of Colonialism
The Colonial era was the next historical period in which franchising began to gain traction. This era is one of my favorites since it features the so-called “Franchise Kings.” Individuals would be allowed to host markets, operate local ferries, hold fairs, and even hunt on the property of the local sovereign/lord. This principle was carried over to the Kings, who would issue franchises for various commercial enterprises. Local individuals who consented to take on the danger of founding colonies were even granted franchises by European kings (who were theoretically close to becoming Kings themselves). Once a colony was established, the founder may obtain the “Crown’s” protection in return for taxes or royalties.
Interesting—that notion sounds a lot like a protected region, which is a popular and significant feature of today’s franchising.
The 1840s
Take a sip of your favorite beverage before continuing to read this article. If beer is your preferred beverage, the 1840s should be of great appeal to you.
During the 1840s, a beer maker in Germany offered many local pubs the license to sell his beer. The fact that the bar owners were required to adopt the beer brewer’s trade name is intriguing. SPATEN is the name of the company. Because they had to pay for the right to use the trade name, the bar owners were essentially franchisees (a.k.a., the brand name). Isn’t a well-known brand one of the most common motivations for individuals to purchase franchises today?
By the way, the trademark SPATEN is still in use today.
The 1880s
Mr. Isaac Merrit Singer, a visionary entrepreneur, is credited with inventing the modern franchise company model.
I.M. Singer & Company was founded by Isaac Singer. He was the first to patent a sewing machine that was both practical and extensively utilized. In the mid-nineteenth century, sewing machines began to come on the market—but not like the one Singer produced. Singer sewing machines could sew 900 stitches per minute, which was much faster than any other sewing machine at the time.
In the mid-1880s, everything was sewed together by hand, so a speedier sewing machine was a huge deal. Sewing women worked extraordinarily long hours in clothes factories that were not particularly pleasant places to work. If their family could afford a sewing machine, they had to do a lot of sewing as well.
Singer sewing machines were out of reach for most Americans, costing $120 apiece. However, this was corrected by one of Singer’s associates. He devised what would become the world’s first payment plan. That’s correct, regular folks could buy Singer sewing machines and pay for them over time. Singer was able to sell a lot more machines after using this strategy. All he needed was a better means of distribution. And, being the savvy businessman that he was, he worked out how to make it happen.
Arrangements for Licensing
The following is how Singer’s license agreement worked:
Singer and his associates would seek out businesses interested in purchasing the rights to sell Singer’s sewing machines in certain geographic regions. They would charge parties that wished to become licensees an up-front fee—a licensing fee—for the right to sell the devices once they located them. Singer also asked licensees to train customers how to operate the machines they had just bought. This was a win-win situation. The partners now had money flowing in from license fees, allowing them to expand their production capabilities. The licensees had their own companies and were offering a product that most people desired.
There was another thing that most American homes desired at the time. It was an item that, like the Singer sewing machine, was beginning to be mass-produced in vast numbers. And it was an item that would have a significant influence on our way of life—as well as franchising.
The beginning of the twentieth century
Automobiles revolutionized everything in America when they were invented and then mass-produced. There was now a means for people to travel rapidly from one region to another… or, at the very least, quicker than a horse and buggy.
Automobile manufacturers must have realized they were holding a game-changing product in their hands. Right?
As more people became interested in vehicles and wanted to buy them, Henry Ford, who had recently pioneered mass manufacturing through the assembly line, needed to figure out a suitable method to market the product.
Automobiles were formerly offered via mail-order catalogs, believe it or not! Some were even sold by salespeople who toured around the United States looking for purchasers. Because those two distribution systems were insufficient, Ford and other automotive makers devised other distribution strategies.
The vehicle dealership was one of these new distribution mechanisms.
In Detroit, Michigan, William Metzger developed and launched the first independent vehicle dealership in 1896. He did, in fact, sell an electric car called a Waverly for roughly $1,000. That’s correct, an electric vehicle. Isn’t it something that’s beginning to happen again?
H.O. Kohller was the second businessman to become involved. He established Pennsylvania’s first vehicle dealership. He was a Winton car salesman.
Those guys were the first to own a car franchise. Henry Ford and other automotive manufacturers now had a distribution system in place. They had a franchising system for automobiles. Automobile franchises sprung up all over the place.
Other Franchises Began to Show Up
Automobile franchisees sold a large number of vehicles. A greater number of roadways were paved. Americans were able to traverse farther distances in less time than their European counterparts. However, these new machines, or vehicles, need fuel to operate.
To keep all of the vehicles fuelled, the oil corporations began to establish gasoline service stations. Some of them were turned into franchises. Some of them, such as Chevron, are still around.
For this rising army of vehicle drivers, another source of energy was required—food. Restaurants (at first, independent ones) began to spring up all over the area as the years passed… Especially in the vicinity of all the newly paved highways. Food franchises eventually began to spring up.
The 1960s
My particular franchise idol is Raymond Albert Kroc. Franchising may not have become what it is now if it hadn’t been for Ray Kroc. McDonald’s restaurants, which have been strewn over the landscape along exit ramps of every major highway since the 1960s, would not exist.
Ray Kroc, a salesman with extraordinary eyesight, was born in 1902. He began by selling milkshake-making supplies. He was so confident in the product (the Multi-Mixer) that he put his house up for sale to become a distributor for this equipment that could mix five milkshakes at once. Kroc sold Multi-Mixers to clients in the food sector all around the nation.
Kroc had heard about two brothers from California called Dick and Mac McDonald during his travels. They ran a busy hamburger stand and were concurrently employing eight of Kroc’s milkshake-mixing equipment. He made the decision to go to California to see how they did it. He saw a mechanism that resembled an assembly line. Kroc was pleased because the McDonald brothers looked to have this method down to a science.
After visiting the McDonald Brothers’ restaurant, Kroc had a major insight. He imagined eateries similar to theirs springing up all throughout the nation. The McDonald brothers were seeking for a “franchising agent” to sell franchises throughout the nation, and Ray Kroc was the appropriate man for the job, having worked as a salesperson for the previous 30 years.
Kroc signed an exclusive agency agreement with the McDonald brothers and began selling franchises. Simultaneously, in Des Plains, Illinois, he established the first replica of the McDonald brothers’ California eatery. Ray sensed something great coming together and sought to get the brothers to start thinking larger as well. After a few years, the three had many eateries under their control. Kroc, on the other hand, was the one who aspired to turn the restaurants into a genuine “empire.” He saw an opportunity to create a chain restaurant like theirs at a time when vehicle travel was growing more popular and highways were appearing in more and more areas.
After finding that the McDonald brothers were not as committed to developing a restaurant empire as he was, Kroc bought them out for $2.7 million.
McDonald’s had 500 outlets up and operating by 1963. Approximately 34,000 McDonald’s locations are open today. They are 80 percent franchisees. McDonald’s employs 1.8 million workers in 118 different countries. Kroc, I believe, was successful in constructing an empire.
Three Leading Franchisees of Today
Issac Singer and his associates were successful in making it easy for customers to purchase their merchandise. Singer was able to increase manufacturing of his sewing machines thanks to the Singer Sewing Machine payment plan; all he needed was an effective distribution system. He created one, and his licensing structure was a forerunner of today’s franchising.
Henry Ford was involved in the development of the franchise concept. Once he got mass manufacturing down to a science, he realized (as Singer did) that he needed to focus on the distribution side of the company as well. He accomplished this by establishing a nationwide franchise (dealer) network.
Ray Kroc’s contributions to franchising are related to cleanliness and consistency. A McDonald’s franchise in Beaufort, South Carolina, will provide the same menu options as a McDonald’s restaurant in Portland, Oregon, and will most likely be as clean. Furthermore, the eateries he developed along highway exit ramps were shortly followed by other companies, including franchises such as hotels and motels that cater to travelers by car. It was a cascade of events.
“The two most critical conditions for great success are: first, being in the right location at the right time, and second, doing something about it,” remarked Kroc at the time.
Ray Kroc, Henry Ford, and Isaac Singer happened to be at the right place at the right moment and took action. And there’s more.
Watch This Video-
The “history of franchising essay” is a history of franchising as we know it. The article discusses the changes that have occurred in franchising throughout the years.
Frequently Asked Questions
What are the history of franchising?
A: Franchising is a business model where an owner licenses the rights to their brand, products and services to another company that is called a franchisee.
When did franchising start?
A: Franchising began in 1946, with Ray Kroc and McDonalds.
Who started the idea of franchising?
A: Franchising is a business model that was started by the McDonalds restaurant.
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