REVIEW OF RELATED LITERATURE
Franchising is defined as a business model wherein the owner of the business (franchisor) gives the independent operator (franchisee) the right to distribute his product, apply his business techniques and use his brand and/or trademark in the conduct of the business. With such a business model, the business owner can maximize their business’ profit potential in a shorter time compared to other more traditional business models. In franchise business, it is not only the products or service that the franchisee can avail; it is more of the system-the business plan of the chosen franchise. It is fact that before franchise companies offer their business packages, they already conducted strenuous researches and studies to test the capability of the franchise to withstand the various factors that might affect the operation of the business. Simply put, franchise business offers a time-tested business plan. When entrepreneurs think of franchising, food is often the first thing that comes to mind. Most of the world’s biggest restaurant concepts are all franchised businesses. This chapter focuses on study and literature readings of franchising business specially food franchising. Different report related to this research will help researcher educate themselves to the different aspect of purchasing a food franchise.
Since 1950s, food establishments have quickly become the most popular sector in franchising. In U.S. as the nation’s economic environment hold steady, franchising continues to exhibit its positive influence. According to William Rosenberg International Center of Franchising at the University of New Hampshire Whittemore School of Business and Economics, “Franchised Businesses create more value and perform better financially than their non-franchised competitors”. The study found that over the 10 year period, U.S. public restaurant franchisor have created more value than their non-franchising competitors. “Franchising firms minimize agency problems, and have access to cheaper capital, motivated managerial expertise, and better local market knowledge,” according to the report. Franchising has grown so fast since the 1950s that it is now pervasive in different economy around the world. In study commissioned by the International Franchise Association, PriceWaterhouseCoopers estimated that in 2001 there were more than 767,000 business establishment in the United States engaged in franchising, providing directly or indirectly more than 18 million jobs, over $506 billion in payroll, and over $1.5 trillion of output. Franchising now dominates certain sectors of the U.S. economy, over 56 percent of quick-sevice restaurants are franchises. Franchising is also one of the fastest-growing U.S. exports, and it is now estimated that franchising will grow 12 to 14 percent per year in the future. The restaurant industry has earned a reputation for high risk and high rewards. Some industry analysts claim a dubious 90 percent failure in the first year. Franchise restaurants based on proven systems have a high success rate—about 62 percent over four years—than independent operators. In U.S. the average full-service restaurant in 2006 grossed $867,000. The restaurant industry is the U.S. largest employer after the government. The profitability of a food franchise always depends in their ability to provide satisfaction in their customers. Research indicates that consumers have strong preference about choosing where to eat—with 62 percent saying they look for “environmentally friendly” establishments, 70 percent want offerings not easily duplicated in their home kitchen; and 83 percent express approval of healthier eating options at quick service eateries. The Success of food franchise can be put down to strong customer focus; franchisees are selected and entrusted with a loved brand and the quality of product and service is never compromised. It is necessary that...
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