History of franchising

The history of franchising has deep historical roots. Many scholars argue that the first memories of such structures can be found in Britain, where the exclusive right to collect taxes was granted to large, influential barons with noble titles. At the same time, ordinary citizens were given the right to sell goods in markets for a certain monetary reward, and later these places became known as franchises.

Many scholars agree that the first company built on the franchise system was the Singer Sewing Machine Company (USA), known in Ukraine as Singer. In the 50s of the XIX century, Isaac Singer’s company was widely known all over the world, its famous sewing machines were well-sold throughout the United States. It became necessary to organize a full-fledged service. Setting up a service system in such a vast territory turned out to be quite a complicated and expensive undertaking. To solve this problem, Isaac Singer signed an agreement with major dealers for the right to sell and repair sewing machines and equipment in parts of the United States.

Singer’s franchise system, the only one in the world at that time, provided the market with a mass production of sewing machines. Competitive prices and high turnover made it possible to create a franchise system that gave some companies the right to sell and service Singer sewing equipment.

In 1898, a real boom in franchising was created by General Motors. The company introduced a scheme in which the company’s official dealers had to invest their own funds in the development of the corporation, thus confirming their high interest and participation. General Motors dealers were responsible not only for selling cars but also for their further maintenance. Dealers were obliged to maintain the prestige and high level of the company.

A few years later, Coca-Cola, and a little later, Pepsico, adopted a franchise system, producing syrup for their beverages in one place, and further production of beverages and bottling took place at franchisees’ factories. Franchisees were the owners of factories and stores that sold Coca-Cola and Pepsico products.

The beginning of the twentieth century marked a new round of development for franchising. Wholesalers were producers of a product and sold it to franchisees who sold it at retail outlets at retail prices. Thus, in 1926, the Independent Grocers Alliance (IGA) was established in Chicago. The role of the Independent Grocers’ Alliance was such a significant step in the development of the US economy that in 1932 the same fate befell Europe. In the Netherlands, DE SPAR, the “Free Grocers’ Network”, known today as SPAR, was founded. The name of the European network was formed from the first letters of the motto: “Door Eendrachtig Samenwerken Profiteren Allen Regelmatig”, which means “We all benefit from cooperation”.

The main stage of the formation and development of franchising occurred during the period of non-interventionist policy in the 50s in the United States. An example of successful franchising is the history of the McDonald’s restaurant chain. The brothers Richard “Dick” and Maurice “Mack” McDonald, who founded the McDonald’s empire, have spread around the world a product and service that is recognizable in any country due to the special form of products and the uniqueness of service. By obtaining a license to buy and sell restaurants, the company transferred a single, integrated restaurant business system. Today, the McDonald’s restaurant chain operates worldwide and has more than 14,000 restaurants.

In 1958, brothers Bert Baskin and Irv Robbins decided to use a franchise in their own café to increase the popularity and profitability of their company. After that, the brothers focused more on production, and the café was transferred to their franchisees. The result of the experiment was a significant increase in financial profit. Today, the Baskin Robbins café chain is open in almost every country in the world and has about 6,000 establishments.

In the twentieth century, manufacturers of goods in the United States thought about how to increase the market for their products and sell more goods. And the franchising system opened up new opportunities for businessmen. Using the franchising principle, wholesale suppliers of goods began to build business relationships with retail chains of stores and supermarkets. The seller (franchisor) made discounts to retail organizations that could use the company’s trademark and at the same time remain independent.

In the United States, 40% of the total turnover is accounted for by franchised companies. Economic relations based on the franchising principle have also taken root in Europe. The share of such companies in the market ranges from 5% to 30% of the turnover, and the number of franchise networks is constantly growing. The European leaders in the use of franchising in doing business are France, Germany, and the United Kingdom. Poland is currently the leader in terms of the growth of franchise networks in European countries.

The Soviet Union learned about the existence of the franchise system in 1980 when the American corporation PepsiCo appeared on the USSR market. Franchising began its rapid development in the post-Soviet space in 2001.

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