Franchising

The term franchising is often erroneously used among business journals and trade associations to refer to franchisees, franchisors or both. As defined by the American Heritage Dictionary, franchising is when a party, the franchisor, "grants a franchise" to a franchisee.

tr.v.   fran·chis·ing. To grant a franchise to.

e.g. Our company president is considering whether to hire a franchise development manager soon so that we can be franchising by next year.

Franchise grants of authority are given for monetary gain, whether by giving the franchisor a franchise fee, royalty fees, marketing fees, product mark-ups, and more.

Franchising = selling franchise licenses

Franchisors will naturally and understandably argue that franchising, the development of a franchise network, takes two to tango. In the act of granting a franchise, a buyer must be willing to pay for a grant of a franchise from a franchisor. But that leaves out the point that when the term franchising is used, the franchisor is the prime mover. The franchisor is the entity that sells franchises and grants rights, not the other way around.

Examples of How Not To Use "Franchising"

Sometimes newspapers, business journals and trade associations use the term incorrectly.  Here's a few wrong uses of franchising.

"I saw the potential franchising offered and applied for a management position with Domino's [a pizzaria in the speaker's neighborhood]." - Indystar

"Franchising now accounts for 5% of Philippine GDP" - Manila Bulletin

It is highly unlikely that selling franchises accounts for 5% of the Philippine GDP. It is doubtful that the author meant that. Franchising also does not refer to the economic output of all franchised units and their vendors.

"Women are likely to look to franchising because of the flexibility and challenges it provides, a new survey has found. According to Mortgage Choice's Best in the Mortgage & Finance Industry report, potential female franchisees see the ability to control their own time and movements as the most important aspect of running their own business." - Broker News

Unfranchising or Franchise Termination

When a franchisor decides to remove or terminate the franchise license, they are in essence un-franchising.

There are all sorts of reasons to terminate the license.  A franchisee may run a shoddy ship. A franchisor may cold-heartedly calculate that such small mom and pop franchise units are not its future and look for any excuse to terminate the franchise arrangement. But barring legal intervention, again, it is only the franchisor who can grant or ungrant, not the franchisee.

A company's franchising ability is important to investors. Savvy stockholders would want to know the strength of a firm's franchising efforts. Both stock investors and store unit investors would want to know why a franchisor operationally would have difficulty retaining franchisees. They might also wonder why franchisors cannot better keep average Joes, or why the franchisor seems to have a propensity to sell franchises to franchise owners who have difficulty running a business, any business.

A franchise buyer would particularly want to know if the franchisor is making money only on its franchising efforts and whether it understands how to profitably operate the stores it is franchising.

Note: We have a category on Blue MauMau called "franchising". The intent was to discuss franchisor development issues. We tend to use it here to discuss franchisor issues. That category name will be re-thought.