AEI:
We obsess a lot at Ethical Corporation about ‘big business’ but the businesses that touch us every day are local shops. Many have international brand names on their signage, but are licensed and operated by our neighbours.
In the Middle Ages, kings granted rights to collect taxes, brew ale, or operate meat markets, collecting a royalty fee. Here are the modest roots of franchising, which began growing in the 1960s, after a hamburger shop named McDonald’s in suburban Chicago started spreading its seed across America.
Today, it is estimated that the 767,000 franchised businesses in the US account for 45% of retail sales, generating $1.4 trillion in yearly revenue.
The UK turnover of franchised businesses, £10 billion, is far smaller, but growing. And franchising is exploding in Asia, particularly China, India, and Eastern Europe. Fornetti, the Hungarian-based baking company, is already Europe’s third largest franchiser.
Huge growth has spawned an expanding market in franchising magazines and internet tout sites. Who hasn’t heard the apocryphal story of the middle manager who opened up a sign shop or burger-flipping joint only to retire on a yacht in the Caribbean?
‘The good news is that the likelihood of you failing as a franchisee is fairly remote,’ states ‘Business Opportunities’, one of dozens of sites feeding the franchising frenzy. ‘According to the US Small Business Administration, roughly 30% of all non-franchise businesses fail within the 1st year.’
Articles invariably tout a 25-year-old study by the International Franchisee Association, claiming 95% of all franchises succeed. Don’t Believe It.
Jim on November 14th, 2006 at 3:06 pm
The old computer cliché “trash in, equals, trash out? applies to bogus information readily available on the web.
Nothing irks me more than unsubstantiated franchise statistics that are quoted all over the internet. Some of the bogus statistics listed below can be found on multiple websites. I was unable to verify or validate any of the statistics listed.
Some of the unsubstantiated franchise statistics quoted are:
Eighty-five percent of non-franchised businesses will not survive over 5 years!
In the first five years it is estimated by the International Franchise Association that only 5% of franchise businesses fail in the first five years.
The U.S. Department Of Commerce States That 90% Of Franchises Are Still In Operation After 10 Years, Compared To Just 18% For Other Forms Of Small Business.
A 1999 Study By The U.S. Chamber Of Commerce Found That 86% Of Franchises Opened Within The Last 5 Years Were Still Under The Same Ownership And That 97% Of Them Were Still Open For Business.
A U.S. Department Of Commerce Study Conducted From 1971 To 1997 Showed That During That Time, Less Than 5% of Franchised Businesses Were Closed Each Year.
In 2000, the Median Gross Annual Income, Before Taxes, Of Franchisees Was In the $75,000 to $124,000 Range, With Over 30% Of Franchisees Earning Over $150,000 Per Year.
A U.S. Small Business Administration study conducted from 1978 to 1998, which found that 62% of non-franchised businesses closed within the first 6 years of their existence due to failure, bankruptcy, etc.
No two franchise systems are alike some are very good and worth the investment.
Others are poorly managed and in it for the wrong reasons.