The History of Franchising

The oldest operating McDonald's restaurant in the world in Downey, Los Angeles, California, USA

Franchising has a long and fascinating history, one that touches different points in history at different times. The rudiments of modern franchising date back to the Middle Ages, while in England franchises for markets and ferries promulgated throughout the 17th century.

Franchising as we think of it today in the United States dates back to the late 1800s, when an enterprising druggist named John S. Pemberton started flogging a beverage made with sugar, molasses, spices, and cocaine, a drink (now cocaine-free) we know as Coca-ColaIsaac Singer is another well-known figure in franchising for his franchising plan to distribute his sewing machines in the 1850s. Some franchise historians also point to Henry Ford, who knew that after he solved mass production, he had to hone in on the distribution side of the automobile business.

Middle-aged woman sewing on a belt driven Singer machine at the Richmond & Backus Company, Detroit, Michigan, ca. 1905.

By the turn of the century, franchising was starting to catch on, especially in America. In 1902, a man named Louis Kroh Liggett invited a group of druggists to join a “drug cooperative” designed to increase profits by paying less for their inventory. About 40 druggists pooled $4,000 of their own money and adopted the moniker “Rexall,” launching a new franchise-based enterprise.

Modern franchising came to capture the public imagination with the rise of franchise-based food service establishments, most notably Howard Johnson’s, which came to replicate a successful restaurant operation in Quincy, Massachusetts.

However, the man most associated with modern-day franchising is, of course, Ray Kroc and his vision for the McDonald’s restaurant empire. While shilling milkshake mixers, Kroc met Dick and Mac McDonald, who used an assembly-line system to sell hamburgers to the masses. Kroc convinced the brothers to adopt Kroc as their exclusive agent to sell franchises before finally buying them out for $2.7 million. By 1963, McDonalds had over 500 restaurants up and running, an empire that would grow to more than 36,000 restaurants in the modern day. As Kroc once said, “The two more important requirements for major success are: first, being in the right place at the right time, and second, doing something about it.”

A person drinking from a McDonald's cup in front of a McDonald's restaurant.

The 1960s and 1970s were a turbulent time for the franchise industry. The concept intrigued people with entrepreneurial spirit, but the industry also gained a bad reputation due to franchises that were less than scrupulous, under-funded, or presented serious pitfalls for investors; these drawbacks almost ended the practice of franchising altogether.

However, modern franchise law developed and the regulations governing franchising at both the federal and the state level helped the industry to stabilize and thrive. Franchising became a highly regulated area of law that now requires franchisors to provide a disclosure document known as the Franchise Disclosure Document to prospective franchisees.

Franchising has had an enormous impact on the U.S. economy. According to a recent, comprehensive research study on the economic impact of franchising, it is projected that there are nearly 750,000 franchise-based businesses in the United States alone, providing more than 7.8 million jobs and representing more than five percent of the Gross Domestic Product (GDP) of the entire country.

There are nearly 750,000 franchise-based businesses in the United States alone, providing more than 7.8 million jobs.

Franchising represents a powerful and time-tested model to help entrepreneurs realize their dreams. The success of this growing industry is manifested in the number of operating franchises, the number of brands thrust into the public eye, and the tremendous opportunity it represents to franchisees. If you are interested in pursuing your dreams via Rhino7’s powerful franchising success models, contact us for more information.

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