The Franchise Option

December 1, 2010 Published Work
Starting a New Business, PBI Institute

I. INTRODUCTION
Franchising is a very popular distribution method used by a wide variety of businesses. According to a major industry study released in 2004 using data from 2001, all together franchised businesses directly employed almost 10 million people in the United States, representing about 7.5% of all private sector jobs, and were responsible for the employment of an additional 18 million people, or another almost 14% of all private sector jobs, in businesses supporting the franchised businesses, such as food suppliers to restaurants. Sales directly by franchised businesses were $625 billion, and the businesses supporting them had sales of $1.5 trillion in 2001, representing 4% and 9.5% of private sector sales, respectively. There were almost 770,000 restaurants, stores, hotels, gas stations, offices and other businesses operating in all franchise systems, of which about 75% were owned by franchisees and 25% were company operated. Economic Impact of Franchised Businesses – Policymaker Digest, International Franchise Association (2004) (available at http://franchise.timberlakepublishing.com/files/Policymaker%20Digest%20Web.pdf). Franchising's importance has only grown in the past ten years.

There are two forms of franchises, the "business format" franchise, also called the "package" franchise, and the "product" franchise. The business format franchise is the more common form of franchise system and is the focus of these materials.

The business format franchise is a way to duplicate the business. It enables someone other than the franchisor to establish additional business outlets offering the same goods and/or services under the franchisor's trademarks and trade dress, following a system of operation designed to achieve uniform quality standards and make sure the "package" of goods or services delivered to the customer, whether it is a sandwich, ice cream or Italian ice, an oil change or junk removal services, provides the same customer experience everywhere. Examples of business format franchises are easily recognizable, including the Rita's Italian Ice®, Subway®, McDonald's®, AAMCO® and 1-800-GOTJUNK?® systems. The economic impact study identified quick service restaurants and business services as by far making up the two top categories in terms of the number of units, people employed and aggregate sales. The other main categories used in the study were full service restaurants, personal services, retail food, lodging, retail products and services, commercial and residential services, real estate and automotive services. Whatever type of business you are interested in pursuing, there is probably already a franchise system offering it. FRANdata, an industry research group, has catalogued over two hundred subcategories of businesses engaged in franchising. FRANdata's category listing is available at http://www.frandata.com/products/industries.asp.

Copyright 2010 Pennsylvania Bar Institute. Reprinted with permission from Starting a New Business: A Practical Guide to Starting a New Business, Practice, or Franchise, PBI Publication 6522. All rights reserved. The price of the book is $119 plus $6.00 shipping and handling plus 6% sales tax, totaling $132.50. The book can be ordered by contacting PBI Customer Service at 1-800-932-4637 or by visiting PBI on the Web at www.pbi.org.

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