Introduction to Franchising

• Author: Frank Zaid
• Profession: Senior Partner Osler, Hoskin & Harcourt LLP
• Pages: 1-23

CHAPTER 1

INTRODUCTION TO

FR ANCHISING

A.THE BUSINESS OF FRANCHISING

1)Economic Impact of Franchising

Franchising is big business in Canada. Unfortunately, there are no

reliable statistics to let us know just how big franchising is. From a

consumer’s perception, franchised businesses are visible everywhere.

Ironically, however, consumers, like lawyers and government repre-

sentatives, do not realize how extensive the franchise model has pene-

trated Canadian business.

From traditional quick service restaurants and fast food outlets,

to motor vehicle repair centres, drug stores, home maintenance servi-

ces, hotels, educational facilities, children’s play centres, second-hand

goods stores, convenience stores, donut shops, hair salons, packaging

stores, tax services, and f‌itness centres, to name just a few examples,

franchised businesses continue to expand in virtually every product

and service industry. The Canadian Franchise Association, headquar-

tered in Mississauga, Ontario, lists thirty-eight different categories of

product and service franchised businesses.1 The International Fran-

chise Association, headquartered in Washington, D.C., in its 2005 dir-

1Online at (accessible at time of w riting).

1

fra nchise law2

ectory,2 lists eighty-nine different product and ser vice categories. On its

website there are one hundred franchise category listings.3 Moreover,

the lists continue to ex pand regularly with the introduction of new and

innovative franchised businesses.

The INFO Franchise Annual Directory,4 the main source of in-

dependent information regarding franchising, includes 5233 franchise

listings: 3436 in the United States, 1276 in Canada, and 521 overseas.

As quoted from John Naisbitt, author ofMegatrends and Megatrends

2000: “Franchising is the single most successful marketing concept

ever.”5 So extensive is the impact of franchising worldwide that fran-

chise trade associations exist in sixty-one countries.6 The World Fran-

chise Council, formed in 1994 for “the encouragement of international

understanding and co-operation in the protection and promotion of

franchising,” is comprised of franchise associations from thirty-seven

member countries, including Canada.7

Where did it all begin? It is generally accepted that franchising

began in North America when the Singer Sewing Machine Company

initiated a manufacturer/retailer distribution franchise system follow-

ing the U.S. Civil War. However, franchising as a growth vehicle really

began in earne st in the 1950s in the United States, when some of today’s

largest franchisors pioneered their business models. Famous franchis-

ors such as McDonald’s, Baskin-Robbins, Dunkin’ Donuts, Midas Muf-

f‌ler, Kentucky Fried Chicken, Holiday Inn, H&R Block, Duraclean,

Carvel Ice Cream, A&W Restaurants, Pizza Hut, Piggly Wiggly, Econo

Lodge, and Quality Inn, to name but a few, started franchising in the

1950s. But as growth continued unprincipled and unregulated in the

late 1960s, a number of high-prof‌ile franchise systems failed. One of

the more famous failures was the Minnie Pearl chicken outlets fran-

chised business. Although close to 2000 franchises had been sold in

North America by the summer of 1969, less than 200 actually opened,

and none of those survived very long.

Since the late 1960s, franchising has built a credible and substan-

tive base as a method of distributing goods and services. The most

2International Franchise Association, Franchise Opportunities Guide,Spring/Sum-

mer 2005 (Washington: Intern ational Franchise A ssociation, 2005).

3Online at (accessi ble at

time of writ ing).

4Info Franchi se News, Inc., The 2005 Franchise Annual (St. Cath arine’s: Info

Press Inc., 2005).

5Ibid. at H-5.

6Ibid. at H-7 to H-9.

7Online at worldfranc hisecouncil.org> (accessible at t ime of writing).