Frachise Fever Jumps To Overseas Markets
For all the adulation given to dare-to-be-different entrepreneurship, it's perhaps surprising that so many new businesses in Europe are merely copycats.
They're called franchises.
It's a phenomenon familiar to anybody who has driven along a suburban throroughfare looking for a quick lunch. Consumers want consistency and predictability-and there's no shortage of entrepreneurs promising to give them just that.
The numbers are staggering. Franchising accounts for more than $1 trillion of annual U.S. sales and nearly one-third of all retail transactions. More than 320,000 small businesses are franchises, employing one in every 16 workers in the country. A new franchised outlet is said to open every eight minutes. And what began with hamburgers and dry cleaning half a century ago now is a factor in more than 75 diverse lines of business. Among the latest: laser hair removal.
Little wonder that so many entrepreneurs succumb to the franchising dream. But for all the possibilities of riches, owning a franchise carries no guarantees. Because no matter how well a business is designed, or how often the model has worked elsewhere, fledgling franchisees discover each year that no business-not even copycat ones-is foolproof. In the end, success usually comes down to how good the individual franchisee is at picking the right concept, finding the best location, keeping down costs and fulfilling customer needs. In other words, the same things that determine the success of any business.
What's more, while franchisers often boast that they leave little to chance, the reality may be very different.
"Many franchisees think they will get a lot of training, but find out it's a one-week crash course," says Marko Grunhagen, a specialist in franchising in Southern Illinois University's business school in Edwardsville. "One day it's marketing, and one day it's accounting." Another factor he says to consider: "Most franchise contracts are designed to put the franchisee in a weaker, disadvantageous position."
Adding to the problem: With 1,500 or so franchisers vying for a slice of their markets, some sectors are jammed with competitors. For example, more than a half-dozen franchisers are selling Buffalo wings. Other crowded fields include motels, senior care and oil changes.
Do Your Homework
Experts caution those enamored of a franchise investment to undertake a dispassionate analysis of the opportunity. That includes studying the franchiser's Uniform Franchise Offering Circular, a document that regulators mandate-but don't review for its truthfulness. Too many would-be franchisees don't do nearly enough homework, Prof. Grunhagen says. Instead, he says, they "see that down the road there's a Hardee's that's been successful for 30 years and say, 'Hey, I can do that, too.'"
A frequent franchising come-hither is the chance to be one's own boss. Yet that, too, may not turn out to be quite the case; a franchisee relies to a significant extent on the franchiser to call the shots. "Franchising's not for everybody," acknowledges International Franchise Association President Don DeBolt. "Look, there's a book you have to follow. Are you going to be comfortable with that?"
Successful franchisees straddle the line between independence and fealty. Dick Woltz, who left a marketing manager's job 10 years ago to become a Wild Birds Unlimited franchisee in suburban Des Moines, nonetheless regards himself-as do many franchisees-as an independent businessman. He insists that "the only parameters I have on me are those that would do nothing but help me." He thought about starting his own business before signing on with the birdseed franchiser. But he says he concluded that with the franchiser, "I just had a partner that helped me get to it quicker."
As franchising continues to gain popularity, some see another hidden, more cosmic, risk: In persuading a would-be entrepreneur to take the "safe" route rather than pursue a wild dream, franchising may eviscerate our venturesome spirit. After all, franchising seldom represents bold, breakthrough ideas. Instead it is a proliferation of proven concepts, to the potential exclusion of others. The marketplace of many becomes dominated by a few.
"With so much of the economy relying on franchising-not just fast foods and hotels but funeral homes and real estate-for the American consumer choice is declining," says Prof. Grunhagen. "That is a cost that may not be measurable, but clearly it's important."
Copyright © 2004 Dow Jones & Company, Inc. All Rights Reserved