Thread: Franchise

The effects of franchising
on modern business
Consumers everywhere love the consistency that comes from shopping in a
franchised business. From the cleanliness of the rooms at a Courtyard by
Marriott to the fun children will have at a Pump It Up, people know what they
will get when they purchase under a franchisor’s brand. The number of industries
bringing goods and services to customers through franchising is growing,
limited only by the imagination of the businesspeople who are beginning
to understand the potential of this ancient method of distribution. Franchising
creates opportunities for business ownership and personal wealth — both
part of the foundation for the growth of peace and democracies.
What most people don’t understand is the sheer size and impact franchising
has on the economy in the United States. Based on a 2001 economic impact
study conducted by Price Waterhouse Coopers (PWC) for the IFA Education
Foundation (IFAEF), franchising generated more than 18 million jobs in the
United States, or nearly 14 percent of the private sector employment. Indeed,
in the gambling capital of the world, Nevada, 20 percent of its private sector
workforce is employed because of franchising.
Franchising is becoming an increasingly significant force in the overall U.S.
economy — take a look at the economic impact of franchised businesses on
the U.S. economy shortly after the turn of the millennium on the bonus
CD-ROM (CD0101).
More than 760,000 franchised businesses exist in the United States, generating
a total economic output of more than $1.53 trillion, or nearly 10 percent of
the U.S. private sector economy. The study now being conducted by PWC for
the IFAEF will examine 120 distinct lines of business that are currently using
franchising.

The success of franchising for business owners

For years, the International Franchise Association (IFA) kept statistics on the
success of franchising. However, many of the studies that those widely published
statistics were based on, including those claiming that franchisees
have a success rate of 95 percent versus a failure rate of 85 percent for nonfranchised
start-ups in their first five years in business, turned out to be inaccurate
and usually misleading. The IFA no longer publishes those statistics
and has asked its member companies to not refer to them any longer. You
should be wary of any franchisor that still uses these claims of franchise
industry success statistics.