What exactly is franchising, and what are some of the best franchise examples that we can learn about from a Business and Marketing perspective? Keep on reading to find out!
While the boom in franchising didn’t take place until after World War II, the foundations of modern franchising can be dated back to the Middle Ages.
Around the 16th century, land owners used to make franchise-like agreements with tax collectors, who retained a percentage of the profits they collected, turning the rest over. And although this practice ended at the end of the century, it continued spreading to other endeavours.
What is a franchise model?
Today, the franchising system is a business model that constitutes an agreement between a business owner (the franchisor) and a third-party (the franchisee).
This agreement allows the franchisee to manage and operate the owner’s products and services using their trademark, branding, and business model – in return for a fee and ongoing royalty payments.
In other words, a franchise essentially acts as an individual branch of the main franchise company.
Of course, there are different types of franchise business models and ownerships, but this is the general concept behind this system, and everything that you need to know at the moment to understand its basics.
The reason why is because I believe that the best way to understand a concept is to look at practical, real-world cases. And that’s why today, we will focus on discussing different franchise examples.
What are the benefits of franchising?
Before we move on to our franchise examples, let’s take a quick, but deeper look at the concept of franchising as a business model. What are its main benefits and advantages?
Here are some of the biggest reasons why many people choose this model to start their own business:
One of the most important advantages of franchising is the right to use an already established trademark. As a franchisee, you are allowed to trade with the name, logo, style, and brand colours of a company that’s already built a name for itself.
This is especially important if you have chosen a reputable company that has achieved a certain level of brand awareness. On the contrary, if you have to start a completely new and independent business, you will have to build that reputation and brand recognition completely from scratch.
Support and Training
Another benefit of working with this business model is that you can usually expect an ongoing support and training from the franchisor. This means that they will guide you into the right way to begin developing your business, which increases your chances of succeeding.
In many cases, this support includes administrative and managerial services, as well as Marketing materials and resources.
The next benefit of operating a franchise business is that you have a lower risk for failing compared to a newly-established company. Generally, franchises tend to be a more secure investment because they use models that have already been tested (and have succeeded).
Additionally, banks are more likely to approve a loan for a franchise with a credible reputation other than for starting an independent business.
One of the hardest parts that comes with the process of starting your own business is gaining a loyal customer base, and increasing your brand recognition. It takes a lot of time, money, effort, and the right Marketing strategy.
However, when you buy a franchise, you basically bypass a lot of the work that goes into Marketing, advertising, and branding. So, you not only jumpstart the process of getting your business up and running, but you save a lot of money, too.
And now that we have cleared out some of the most important benefits, let’s jump right into our franchise examples!
10 brilliant franchise examples
As I already mentioned, I think that one of the best ways to understand a concept is to see some real life examples and practical cases. So, without wasting more time, let’s go:
First on our list of franchise examples, and probably one of the most famous ones, is McDonald’s.
The leading fast food company has been franchising since 1955 as a predominant way of doing business. In fact, out of the 38,695 restaurants that McDonald’s has worldwide, 36,059 are operated by franchisees, and only 2,636 by the company itself.
This means that the company owns just 6% of its restaurants!
Some requirements to open a McDonald’s franchise include:
- An initial down payment of minimum $500,000 in liquid cash;
- A franchise fee of about $45,000;
- A good credit history;
- Significant business experience;
- The ability to develop and execute a busines plan;
The total initial investment for opening a McDonald’s varies between $1 million and $2.2 million, which will also depend on whether you are opening a new restaurant, or purchasing an existing one.
Considering the strict criteria and significant investment that the company requires from its franchisees, why is there so much demand for it?
The main reason why is McDonald’s turnover. The company has profit margins of approximately 20%, which is quite impressive considering that the average profit margin for big companies in the S&P 500 index is just about 8.7%.
In fact, the average profit margins for the restaurant industry are just 2.4%. So, how is McDonald’s able to achieve these margins? The main reason why is because the food is really cheap – even cheaper than you would think.
The company has an incredible operational efficiency compared to other brands in the industry. For example, a cheesburger costs just 0.39 cents to make! You can check McDonald’s actual expenses on every product here.
2. Marriott International
Next on our list of franchise examples is the American hospitality company Marriott International.
Founded in 1927, Marriott is the largest hotel chain in the world by number of available rooms. More specifically – 1,400,693 rooms from 30 different brands with 7,848 properties across 131 countries. I can’t even process that many numbers!
Anyways, back to our point.
According to franchisegrade.com, which offers franchises to operate brands such as Marriott Hotels, JW Marriott Hotels, Marriott Resorts, and other ones from the company’s wide portfolio, you can expect the following costs if you want to open a Marriott franchise:
- An initial franchise fee of up to $120,000;
- Working Capital: $3,900 to $5,400
- A royalty fee of approximately 9%;
- And a total estimated investment between $70k and $150k;
When it comes to return on investment for this company, MacroTrends cites a ROI of 12.75% by March 2020, a percentage that dropped significantly once the global coronavirus pandemic hit the world. Post-COVID, Marriott’s ROI reduced to just 7.89% in the matter of months.
3. Century 21
Our list of franchise examples continues with Century 21, a real estate agent franchise company that was founded in the USA back in 1971.
Today, it is present across 80 countries and territories, with over 9,400 independently owned franchise brokers, and a total number of 127,000 employees.
Here are some of the requirements that you will have to meet if you want to open a Century 21 franchise:
- Adequate capitalization – the company requires that you have a minimum net worth of $100,000;
- Market availability – additionally, you will have to ensure that there are available markets in your location;
- Franchise fee – as a part of the initial investment, you will have to pay a franchise fee of up to up to $25,000;
- Royalty fees – besides from the initial franchise fee, you can also a 6% ongoing royalty fee, and a 1.5% of ad royalty fee;
To sum it up, you can expect a total investment between $24,000 and $450,000 depending on different factors such as market location, permits, licenses, deposts, and other factors.
As a part of the franchising system, the franchisee receives a complete training, support packages, guidance for the success of the business, a press release and marketing materials, among other benefits.
Going back to the fast food restaurant for a minute, next on our list of franchise examples is Subway. The company is known as being one of the fastest growing franchises in the world – by October 2019, it registered 41,512 locations across 100 countries.
On top of that, it is the second biggest fast food advertiser in the United States right after McDonald’s.
Some of the requirements to open a Subway franchise include:
- A minimum net worth of $80,000 and at least $30,000 in liquid assets;
- Initial franchise fee of $15,000 – among the cheapest franchise fees;
- A weekly fee of 12.5% of the company’s total sales;
- Of which 8% are for ongoing royalty fees, and 4.5% for ad royaly fees;
To sum it up, a total initial investment for the franchise is estimated to be anywhere between $116,000 and $263,000. Which, when it comes to franchisable restaurants, is one of the most affordable options available on the market.
In comparison, we already saw previously that an initial investment for McDonalds starts from $1 million.
Changing the sector for our franchise examples, next on our list is Hertz – a leading car rental company that operates 10,200 corporate and franchisee locations across the globe.
It is also the second largest US car rental business by locations, sales and fleet size, operating in more than 150 countries internationally. In 2019, Hertz had almost 535,000 vehicles in its fleet!
Some of the requirements to open a Hertz franchise include:
- An initial franchise fee between $25,000 and $55,000;
- A net worth of over $500,000, and $150,000 in liquid capital;
- A monthly fee of 10% for ongoing royalties and advertising;
- Preferred experience in the travel or automotive industry;
- Market availability for the specific location desired by the franchisee;
Considering the higher costs associated with the business, including the supply of vehicles that meet the company’s requirements, you can expect to pay a total investment between $318,295 and $4,059,000.
The company also provides an ongoing support for its franchisees. It includes access to major supplier programs for the purchase of vehicles, comprehensive training and workshops, point-of-sale computer integration with the Hertz Reservations System, and more.
Sixth on our list of franchise examples is the French supermarket chain and international corporation Carrefour. Founded in 1959, the company is now Europe’s largest supermarket chain, generating over €86.3 billion in sales across its 12,225 locations.
To open a Carrefour freanchise, you will need to meet the following requirements:
- Experience in management, ideally gained in the distribution sector;
- A desire to become an independent enrepreneur and business owner;
- Excellent interpersonal, organizational, and customer service skills;
- High availability and geographical mobility;
- An initial investment between $95,000 and $295,000;
The franchise agreement is usually signed for a duration of 7 years, and it is automatically renewable.
Additionally, franchisees receive training and assitance by the company. This includes management training programs, merchandising, and even a training center dedicated exclusively to the franchise world.
7. Circle K
Our list of franchise examples continues with Circle K, Canada’s largest convenience store chain with a total number of 15,000 locations mainly across the USA, Canada and Europe. More than 2,380 stores are operating under franchise agreement worldwide.
If you want to open a Circle K franchise, you will need to:
- Possess an entrepreneurial spirit;
- Pay an initial franchise fee of up to $25,000;
- Have a net worth of at least $500,000;
- And also have about $100,000 in liquid cash;
Additionally, you will have to pay an ongoing royalty fee between 3% and 7.5%, and an ad royalty fee of 1.5%. The total investment, depending on factors such as location, construction, remodeling, furniture and merchandise inventory, ranges between $185,000 and $1,600,000.
The company’s franchise program ensures that every franchisee gets proper training to lead their store successfully, and provides additional support in terms of marketing, merchandising, and promotion.
Kumon Educational Japan Co. Ltd. is a Japanese educational network created by the mathematics educator Toru Kumon. It is designed around Kumon’s method of teaching mathematics and reading, and it is focused primarily on young students.
As of 2020, the company has over 24,00 franchises outside of the US, 1,565 franchises within the US, and 27 company-owned centers.
Here is what you need to know about franchising a Kumon center:
- There is no need for specific experience or background in the educational sector;
- However, you will need to have a net worth of $150,000, and liquid capital of $70,000;
- An initial franchising fee of just $1,000, which is significantly less than other franchisors;
- You also need to have a passion for working with children, and a Bachelor’s degree.
Apart from ongoing support, assistance, and training, the company also covers up to $36,000 in different expenses, including 50% of the center’s rent for the first 12 months, a delivery of Kumon’s furtniture and fixture, and a 50% reimbursement on the initial Marketing expenses.
The total investment range varies anywhere between $73,000 and $154,000.
9. The UPS Store
Next on our list of franchise examples is The UPS store, the world’s largest franchisor in the sector of retail shipping, postal, printing, and business service centers.
As of 2020, there are more than 5,000 independently owned locations across the United States, Puerto Rico and Canada. The company is also a wholly owned subsidiary of UPS (United Parcel Service).
Some of the numbers that you will have to take into account if you want to open a franchise of The UPS store include:
- A net worth of $150,000;
- A liquid cash requirement in the range of $60,000 – $100,000;
- An initial franchise fee of $29,950;
- 8.5% in ongoing royalty fees, and 2.5% for ad royalties;
The total investment for the franchise will vary depending on the location, size, and the type of center that you are looking for as a franchisee.
For example, traditional locations cost between $137,000 – $566,000 while the range for rural locations is between $133,000 – $378,000. You can also opt for the so-called Store-in-Store location, which is a freestanding The UPS Store set up in another business.
The total investment for Store-in-Store locations is between $65,000 and $285,000.
Dunkin’, also known as Dunkin’ Donuts, is undoubtedly one of the world’s most beloved doughnut companies, and one of our “sweetest” franchise examples. (It is obvious that I am currently craving a doughnut, right?)
Anyways, back to our facts. With almost 13,000 locations across 42 countries, Dunkin’ is also one of the largest coffee and donut shop chains in the whole world. It is also a huge franchisor – in fact, all 13,000 stores are franchisee owned and operated.
There is not a single company owned store!
Some of the requirements to open a Dunkin’ franchise include:
- A net worth requirement of $500,000 minimum;
- An initial franchise fee of up to $90,000;
- Over $250,000 in liquid cash;
- An ongoing royalty fee of 5.9%;
- And an ad royalty fee varying from 2% to 6%;
Compared to other franchisors such as Subway, Dunkin’ requires a much bigger total investment. However, it is still lower compared to McDonald’s and Dunkin’s main competitor Krispy Creme, the initial investment of which can reach up to $1.9 million.
When it comes to return on investment, the annual sales of a Dunkin’s location range from approximately $620,000 to $1.3 million, depending on the type, size, and location of the franchise.
With an average Dunkin the doing about $1 million in annual sales, you can expect a net operating income of about $100,000 after paying out all expenses.
And that was all from me for today, folks! Thank you for taking the time to read my article on franchise examples, and I hope I will see you in my next post! Until then, do not hesitate to leave me any doubts or questions in the comments below. It would also make me really happy if you susbcribe to my blog – I promise that I don’t spam!