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THE EVOLUTION OF FRANCHISING

There’s a difference between history and evolution. History documents what has happened in the past.

Evolution tracks an ongoing phenomenon in the process of continuous change. The evolution of franchising began with a revolution of business concepts that were pioneered by innovative companies and entrepreneurs.

The concept of franchising can be traced back to the 1850’s when two companies, Singer Sewing Machines and McCormack Harvesting Machine Company, began franchising the sales and servicing of their equipment. Around the same time, the earliest known restaurant chain in the United States was founded by an Englishman called Frederick
Henry Harvey.

His first restaurant failed because of the civil war. Refusing to give up, however, he opened the first of his Harvey House restaurants in 1876 in a terminal on the Atchison,
Topeka & Santa Fe railroad. The railroad wanted to open depot restaurants for its passengers and provided Harvey with locations and free transport of restaurant supplies.
By 1887, after just ten years, there was a Harvey House restaurant located every hundred miles along the 12,000-milelong railroad. Harvey believed strongly in quality control and paid regular visits to inspect his restaurants.
At the turn of the century, American soft drink bottling was a localized industry.
This was largely due to the high cost of transporting finished product and reusable glass bottles.

However, by shipping syrup concentrate to their franchisees and requiring them to bottle under strict formulas and processes, bottlers were able to control the quality of their product and expand rapidly without the need for the capital which company ownership would have required.

Franchisees obtained the rights to exclusive markets and a valuable trade name. In 1901, Coca Cola granted its first franchise to the Georgia Coca Cola Bottling Company.
One of the great innovations in franchising came a few years later in 1909 with the establishment of the Western Auto franchise.

Up to that time, except for the supply of branded product, franchisors did not provide any significant business related services.
While still relying on the mark-up on product sales to its franchisees rather than royalties on sales, Western Auto provided its franchisees with many of the same services which modern franchisors provide today. These included site selection and development, retail training, merchandising, marketing assistance and other ongoing services.
Franchising really came into its own in the foodservice industry. The trend started as early as 1919 with quick service
restaurants such as A&W Root Beer.

In 1919, Roy Allen purchased the formula for his root beer recipe from a pharmacist and, together with Frank Wright, started A&W Root Beer. Needing capital to expand, Allen bought out his partner in 1924 and began franchising the A&W concept. A&W offered car-side service with “tray boys” and later added female “car hops”, some on roller skates, to service customers. One of A&W’s early franchisees was Sherman and J. Willard Marriott who opened franchises in Fort Wayne, Indiana and Washington D.C.

The Marriotts’ first A&W in Washington was owned by J.W. Marriott and his partner Hugh Colton and grossed $16,000 in its first year. As with many of today’s franchise systems, it was the Marriotts as franchisees of A&W who brought innovation to A&W when they requested permission to add food to the restaurant
to increase the unit sales. Using the automobile, curb service, and an innovative hamburger cooked on onions, Billy Ingram and Walter Anderson opened their first White Castle restaurant in 1921 in Wichita, Kansas.
White Castle is credited with many innovations in the fast food industry, particularly in their use of advertising
and discount marketing, the first takeout packaging to keep the food warm and the folded paper napkin..
The growth in restaurant franchises picked up steam in the 1930s In 1935, Howard Deering Johnson teamed up with Reginald Sprague.

The idea was to let independent operators use the same name, food, supplies, logo and even building design in exchange for a fee. During that same period, Johnson acquired a pharmacy in Quincy, Massachusetts and began to sell three flavors of ice cream together with a limited menu of cooked items.

Over the years, the menu expanded and included twenty-eight flavors of ice cream. Developing a distinctive roadside
presence with orange-roofed stores and featuring one of the first pylon signs, the company secured the first turnpike
contract on the Pennsylvania turnpike.
Many of the legendary franchised restaurant chains that began franchising over the next three decades included
Carvel, established in 1934; Kentucky Fried Chicken, established in 1930; Dairy Queen, established in 1940; Dunkin
Donuts, established in 1950; Burger King, established in 1954; McDonald’s, established in 1955; and The International House of Pancakes, established in 1958.
The stories of these early pioneering foodservice concepts have been the basis for many books over the years and the
lessons learned are evident in the many foodservice chains that followed.
The American industrial revolution brought with it the beginning of mass production of consumer goods.

It created the opportunity for companies to produce manufactured goods at lower cost. This fueled consumer demand but also created the need to sell and distribute products efficiently and cost
effectively. Many methods of sale and distribution were tried.

These included direct factory sales, sales through non-branded locations, direct mail and traveling salesmen, none of which were very cost-effective. By selecting franchisees and providing them with exclusive territories, manufacturers were able to effectively and efficiently bring their products to market.

Automobile manufacturers were also able to solve their distribution problems through franchising. As the changeover from steam engines to internal combustion engines began, there also arose a need for petrol stations. Lacking the capital required to purchase real estate to meet the needs of the growing number of automobiles, the oil industry also began to establish dealerships through franchising.
While franchising continued until the beginning of World War II, the truly explosive growth of franchising began after the war to take advantage of increasing consumer demand, the availability of large numbers of prospective franchisees from among returning veterans, and capital provided by separation pay and the GI bill. It was further advanced when prospective franchisees were assured of safety using federally protected trademarks and service marks, essential to the successful operation of a national franchise system.

Before congress enacted the Trademark Act of 1946, better known as the Lanham Act, trademark protection had been inconsistent and uncertain.
Once potential entrepreneurs became confident of trademark and logotype integrity and protection, more and more franchises emerged. The franchising boom of the 1950’s and 1960’s achieved almost mystical stature.

By 1965, McDonald’s had grown to approximately 1,000 units and made their first public offering opening at $22.50. It closed the same day at $30.00 and closed the first month at $50.00.