So is franchising the only owner-operator option?

Before answering the question above, it is useful to discuss the reasons that companies choose franchising.

The first franchises were motor vehicle dealers. Alfred Sloan who transformed General Motors into a colossus said that once trade-ins became part of car sales, an owner manager would do a much better job than an employee. To this day, almost all car dealers are franchised.

In the early days of the fast food business, companies such as McDonald’s and Kentucky Fried Chicken (as it was then known) used franchising to achieve rapid expansion with limited capital.

In the 1950’s and 60’s fast food was considered a fad. Banks and wealthy private investors had little faith in quick serve hamburgers and chicken, forcing the entrepreneurs who controlled these and other fast food chains to convince smaller entrepreneurs to invest their time, money, pride and prestige in their fledgling businesses.

More recently, franchising has been returning to its roots in the motor industry through becoming a vehicle for tied distribution.

Many building products manufacturers, paint manufacturers, steel importers, toy importers, tyre manufacturers and even farm products suppliers have turned to franchising to secure tied distribution.

However, did these companies really need to go to the trouble of franchising, or could they have achieved the same tied distribution through the much less onerous dealer, agency or joint venture networks?

Franchising has become a buzzword among the 100 or so Australian franchise consultants and specialist franchise lawyers. Dot.com was also a buzzword.

A number of major Australian listed public companies such as Motorola, CSR, Landmark and Pacific Brands achieve effective tied distribution through the above alternatives to franchising.

It is particularly noteworthy that, to date, none of these arrangements have been challenged by the ACCC saying they are caught by the franchise code. 

Companies looking for tied distribution should carefully investigate all marketing channel options before committing to franchising.