What is Franchisee?
379 reads · Last updated: December 5, 2024
A franchisee is an independent business owner who operates a third-party retail outlet called a franchise. In doing so, the franchisee has purchased the right to use an existing business's trademarks, associated brands, and proprietary knowledge to market and sell the same brand and uphold the same standards as the first business.
Definition
A franchise store refers to an independent business owner operating a third-party retail outlet. In this process, the franchise store has purchased the right to use an existing company's trademark, related brand, and proprietary knowledge to market and sell the same brand, maintaining the same product standards as the authorized franchising company.
Origin
The concept of franchising dates back to the late 19th century when some companies began authorizing other businesses to use their brand and business model. One of the earliest forms of franchising was introduced by Isaac Singer in the 1860s with the sewing machine franchise model. The rise of fast-food chains like McDonald's and KFC in the 1950s propelled the popularity of modern franchising.
Categories and Features
Franchise stores can be divided into product distribution franchises and business format franchises. Product distribution franchises primarily involve the sale of products, such as car dealerships. Business format franchises include a complete business model, like fast-food chains. Features of franchising include brand consistency, standardized operating procedures, and ongoing support and training.
Case Studies
McDonald's is a classic example of franchising. Its franchise model allows individual investors to purchase franchise rights, using McDonald's brand and operating model to open restaurants. This approach has enabled McDonald's to expand rapidly worldwide. Another example is Starbucks, which, although mostly company-owned, uses franchising in some markets to accelerate market penetration.
Common Issues
Common issues investors face when considering franchising include the initial investment cost, ongoing franchise fees, and reliance on the franchisor. A common misconception is that franchising is a 'get-rich-quick' scheme, whereas it actually requires significant effort and strict adherence to brand standards.
