The Big Bang

Bright Days Ahead

If you think franchising is exciting today, just wait until you see what the next 25 years may hold.

So what lies ahead for franchising over the next 25 years? Continued growth, consolidation and maturation of both franchisors and franchisees, plus some dramatic new developments, including:

  • Expansion of multibranding: One franchised unit sells many branded products or services. Yum! Brands Inc.-owner of A&W, KFC, Long John Silver's, Pizza Hut and Taco Bell-features more than 2,000 multibrand restaurants worldwide, generating over $2 billion in annual sales.
  • Growth in urban markets: The Department of Commerce Minority Business Development Agency predicts minority populations will contribute 44 to 70 percent of the total increase in U.S. purchasing power until 2045.
  • Business segments turning to franchising for the first time: These include hospitals, health-care providers, investment advisors, the retail bedding industry and specialized health-care facilities (such as detox clinics and weight-loss centers).
  • New franchisors catering to the large and aging baby boomer population: Think home health-care services and products, estate-planning advice, daily living aids, in-hospital patient advocate services and rehabilitation services.
  • A continued increase in franchises that meet the needs of children of working moms: Expect more day-care offerings; specialized classes (from cooking to sports); tutoring and test preparation; and one-stop shopping for teens and preteens featuring clothing, accessories, electronics, music, video and computer programs all in one place.

Even the way franchises are offered and the way franchising is regulated are about to undergo a revolution. The federal government's key franchise regulation, the FTC Franchise Rule, is about to be revised for the first time since its promulgation 25 years ago. Following years of study and public comment conducted under the leadership of the FTC's Eileen Harrington and Steven Toporoff, the new FTC Franchise Rule will feature expanded disclosure based on the current state-ordained Uniform Franchise Offering Circular format, clarification that the Franchise Rule doesn't apply to pure international transactions, and new exemptions relieving franchisors from having to engage in disclosure with sophisticated franchisees. And, in conjunction with the state administrators who serve on the North American Securities Administrators Association Franchise Project Group, the federal and state governments will soon clear the way for franchise disclosure to be effected almost exclusively through electronic communications-e-mail, franchisor Web sites, CD-ROM and the like. We are fast approaching the day when franchisors will meet new franchisees for the first time either when their contracts are being signed or even later, at the first training session for new franchisees.

Want to see the future right now? Then look to California. Under the leadership of California Corporations Commissioner Demetrios Boutris and deputy commissioner Timothy LeBas, California is already implementing two future trends. Go to www.corp.ca.gov, click on "California Electronic Access to Securities Information" (Cal-EAS), and you can view and download virtually all California's franchise filings-disclosure documents, notices of exemption, administrative orders and more. Soon to come: California adopting a "risk-based" franchise registration review protocol, which gives closer scrutiny to start-up or problematic franchisors seeking registration than to mature, reputable and well-established franchisors.

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This article was originally published in the January 2004 print edition of Entrepreneur with the headline: The Big Bang.

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