|Read more about the Local Multiplier Effect.|
Just in case you were wondering. It comes up from time to time, and the point to me remains: “They (franchises) buy into someone else’s business model.”
AMIBA readily concedes the “gray” in franchising, but not the fundamental difference between your own conceptual creation and using someone else’s. That’s always been the crux of it for me, and it always will be. If that makes me cantankerous, so be it.
And are franchises’ advantages worth the trade-offs for business owners?
Editor’s note: we originally wrote this memo for AMIBA affiliates as a member resource. We decided to make the page publicly accessible to help prevent others from making costly errors after we saw many “buy local” campaigns derailed by mishandling franchises or cooperatives.
Franchising is a business model used by corporations (franchisors) wishing to expand their reach and increase revenues without taking direct responsibility for financing and managing each new location. The franchisor grants licenses and enters into contracts with individuals or companies wishing to open a branch (franchisees). These licenses typically are for a limited number of years and grant a specific territory to franchisees. It’s akin to leasing a business.
While some franchises are operated by area residents, others are owned by management corporations that may own many franchises (this is especially common in fast food, where a single company may run outlets of multiple brands).
Individual store owners may own or lease their store building or space, but they buy into someone else’s business model. Support from the franchisor may include a known brand, business plan, trademarks, training, site selection assistance and other tools that theoretically help make success more likely. The franchisee pays a royalty fee and also may pay a portion of sales or profits as part of the franchise agreement, which usually has a finite term attached to it that may be renegotiated at its end. For most franchises, especially restaurants, contracts typically require buying some or all inputs from the parent corporation or its chosen distributor.
The franchisor typically has the right to revoke the franchise from a franchisee if their stipulations are not followed. Because of limited local decision-making authority, franchisees typically do not meet AMIBA’s suggested definition of a local independent business. However, since we are not a franchisor, member organizations ultimately make the decision of how to handle franchises.
If you opt to allow any franchises to be listed in any of your organization or campaign materials, we recommend strongly it be in a “locally-owned franchises” category, distinct from independent businesses. Make sure your board and staff know your policy to ensure consistency and share this page with them so they can speak knowledgeably on the topic …