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The History of Franchising

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Earliest Franchising

Many believe that Albert Singer, founder of the Singer sewing machine, was the initiator of franchising. He was actually the earliest person recognized by most as being associated with franchising. However, the concept of franchising really began long before.

The term 'franchising' derived from ancient French, is defined as holding a particular privilege or right.

Back in the middles ages, local leaders would designate privileges to citizens. Some of these rights included conducting fairs, running markets, and operating ferries. The franchising idea then carried forward to the practice of Kings yielding rights to conduct activities such as beer brewing and road building. In addition, the expansion of the church is known as a form of franchising.

The Evolution of Franchising

During the 1840's, several German ale brewers granted rights to particular taverns to market their ale. This was the beginning of the type of franchising that became familiar to most of us in the twentieth century.

Franchising then traveled from European brewers into the United States. Before franchising there was not much in the way of chain operations, which would eventually form the basis of franchising in the U.S.

Peddlers in early American history, selling items from town to town, were also considered a form of franchising. Licenses were provided to general stores at military outposts as well. These exclusive territorial rights are described in written literature, however specific names are not.

Albert Singer came on the scene in 1851 with the Singer Sewing Machine Company. Singer made use of franchising to distribute his machines over a widespread geographic area. He is the first actual name recognized as an early franchisor. Additionally, Singer was the first to prepare franchise contracts. These documents then became the basis for the modern version of franchise agreements.

In the late 1800's and early 1900's many other forms of franchising took place. Some examples included monopolized franchises for several utilities as well as street car companies. Then as oil refineries and auto manufacturers found that they could sell their products over a larger geographical area, they began to franchise.

Transportation and increasingly mobile Americans were the basis for the establishment of retail and restaurant chains/franchises. As time went on a large number of establishments began to franchise. Some of the well-known franchises include Kentucky Fried Chicken in 1930, Dunkin Donuts in 1950, Burger King in 1954, and McDonald's in 1955.

Modern Franchising

The modern leading form of franchising, known as business format franchising, became popular post World War II. At that time, those serving in the war returned home and had huge desires for many products and services. Subsequently, the baby boomers became the leaders of the economy and are expected to continue as the driving force for quite some time.

As franchising expanded rapidly in the 1960's and 1970's, also came a large amount of oppressive activity to contend with. There were several companies that were under-funded and poorly managed, therefore going bankrupt leaving many franchisees in a lurch. More upsetting were the fraudulent companies who literally took peoples' money for nothing.

These unfortunate events led to the formation of the International Franchise Association (IFA) in order to regulate the franchising industry. The IFA continuously works in conjunction with the US Congress and Federal Trade Commission (FTC) on improving the industry's relations with franchisees. In 1978, the FTC created the Uniform Offering Circular (UFOC) requiring franchise companies to provided detailed information to potential franchisees. This document was updated in 2007 and renamed the Franchise Disclosure Document (FDD).

Franchising continues to be a highly regulated industry in an effort to promote the healthy growth of the economy.

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