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Apr032013

Franchising: A Big Portion of Today's Economy

Business Litigation Attorney EncinoFranchise & Business Litigation Attorney

by David Gurnick

818.907.3285

 

By year’s end more than 750,000 franchised outlets will be operating in the United States, employing more than 8.2 million people, generating over $800 billion in sales and comprising 3.4 percent of United States Gross Domestic Product, according to the International Franchise Association.

Why is franchising such a huge part of the American economy?  Here are some of the primary reasons:

1. Confidence: People want to own a business, but fear the risk of starting their own business. They feel more confidence in starting a business that is part of an established, successful system.

2. Brand Recognition: Consumers and the public feel more confident buying goods and services from a recognized brand. Franchising creates this brand recognition.

3. Synergy:  A system of franchisor and franchisees can research and develop better products and services, and better operating systems than an equal number of unaffiliated individual businesses.

4. Market Power: Participants in franchise systems can negotiate better supply arrangements, better leases, and in other respects, keep their costs down. This lets them lower prices to the public.

5. Better Advertising: Likewise, a system of franchisor and franchisees can market and advertise more effectively than an equal number of unaffiliated individual businesses.

6. Competition: New franchise concepts and brands, and franchises providing new categories of goods and services are created all the time. Others seek to duplicate and improve on pre-existing successful concepts, offering the public something a little different, a little better. This form of competition results in more variety and options for the public, and more franchised outlets offering goods and services.

7. Seemingly Limitless Growth Potential: A feature of franchising is that it permits seemingly limitless growth. In the large United States economy, and economies of the rest of the world, there is vast room for the establishment of ever more franchised outlets, both within a single brand, and including any number of competitive brands.

8. Multi-brand Channels: Many successful franchisors create or acquire multiple brands.  Think of Yum with its KFC, Pizza Hut and Taco Bell brands. Companies that get a formula right for their franchise program can apply their success to multiple brands and grow them all.            

9. Local Variation: Independent ownership allows businesses with nationwide reach to adjust to local standards. A franchisee in a small town in one part of the country, and another in a big city, can each adjust to the culture and customs of their own geography.

10. Motivation and Hard Work:  Franchisors and franchisees are entrepreneurs, motivated to work hard, deliver quality products and services and generate profit. Each franchise outlet is independently owned and operated. Each owner has an individual profit motive. People in franchising work hard to make their businesses succeed.

 

David Gurnick is a Certified Specialist in Franchising and Distribution Law, (State Bar of California Board of Legal Specialization). Contact him via email: dgurnick@lewitthackman.com.

 

 

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