my dissertation (uwic 2010)
TRANSCRIPT
HOW DOES FRANCHISING PLAY A MAJOR ROLE IN
RETAIL BUSINESS GROWTH AND EXPANSION IN THE
FOOD INDUSTRY? A CASE ANALYSIS OF MC DONALD’S
RESTAURANT, STRAND, LONDON.
Being a dissertation submitted to the Department of Business
Administration, Cardiff School of Management, UWIC, in partial
fulfillment of the requirements for the degree of
MASTER OF BUSINESS ADMINISTRATION
(MBA Honours)
BY
LATEEF OLUSHOLA SALAMI
MBA (INTERNATIONAL BUSINESS)
ST09004429
SUPERVISOR: DAVID SNELL (Mr.)
UNIVERSITY OF WALES INSTITUTE, CARDIFF
1
FEBRUARY, 2010
TITLE PAGE
HOW DOES FRANCHISING PLAY A MAJOR ROLE IN RETAIL
BUSINESS GROWTH AND EXPANSION IN THE FOOD INDUSTRY? A CASE
ANALYSIS OF MC DONALD’S RESTAURANT, STRAND, LONDON.
Being a dissertation submitted to the Department of Business Administration, Cardiff
School of Management, UWIC, in partial fulfillment of the requirements for the degree
of
MASTER OF BUSINESS ADMINISTRATION
(MBA Honours)
BY
LATEEF OLUSHOLA SALAMI
MBA (INTERNATIONAL BUSINESS)
ST09004429
SUPERVISOR: DAVID SNELL (Mr.)
UNIVERSITY OF WALES INSTITUTE, CARDIFF
WORD COUNT: 20,000
(CHAPTER ONE – FIVE)
2
FEBRUARY, 2010
DECLARATIONI hereby declare that the dissertation, entitled How Does Franchising Play a Major Roles
in Retail Business Growth and Expansion in the Food Industry? A Case Analysis of
McDonald’s Restaurant, Strand, London, and submitted in fulfilment of the
requirements for the degree of Master’s of Business Administration represents my own
work unless referenced and has not been previously submitted to this or any other
institution for any degree, diploma, or any other qualification.
........................................
Lateef Olushola Salami
February, 2010
3
CERTIFICATIONI certify that this dissertation was carried out by Lateef Olushola Salami, under my
supervision at London School of Commerce, London.
...........................................
Mr. DAVID SNELL
DISSERTATION SUPERVISOR.
DATE.................................
4
DEDICATIONThis essay is dedicated to Almighty GOD for his wondrous deeds in my life and for
seeing me throughout my stay in the University.
And
My Parents Alh. and Mrs. M.A SALAMI who both made it a task ahead of them out of
the little within their reach in giving me this legacy, Many thanks to you..
5
ACKNOWLEDGEMENTAll praises to Almighty God who has given me a dream come through to achieve this
academic adventure in the U.K and for guiding me throughout my stay in the University
and make it a task ahead to complete this programme. It’s not really easy.
My most sincere gratitude goes to my parents Alh. And Mrs. M.A Salami for their
moral and financial support throughout my programme.
Especially to my dearest wife, Omolade Adesola Salami and my lovely son, Ayomide
Ibraheem Salami for their support and endurance throughout my absence.................
Many thanks to my family for being there all this while, My big mummy, Adupson
Africana, Mrs. Adeyemo Abisoye, Owolabi Anifowoshe, Ayinla A.
I must extend my thanks to my supervisor Mr. David Snell who despite his tight
schedule creates time for me throughout the supervision period. Your in-depth
criticisms and academic experience helps me throughout this research. Many thanks.
My gratitude goes to all the academic lecturers in the school, most especially those that
have impacted some knowledge in me, and the effort of all the administrative staffs of
the school are recognized and commended.
To my sponsors, Mr Folarin Odulana (Wema Bank, Nigeria) and Mr R.K Yusuf
(University Of Ibadan, Nigeria) for their advice morally and financially throughout this
programme.
To my guidance, Mr. and Mrs. Bola Shosanya for all the effort and contributions during
this study.
My special thanks now go to Mr. Peter Sullivan, Titus Adeosun for their support and
professional advice during the interview for this research.
Mrs Oluwatoyin R. Olaoye, you will be remembered for ever throughout my life..........
You will forever be my darling. Many thanks to you.
I will end here by saying, Sky is my starting point and not my limit. This is just another
starting point in my academic pursuits in life.
Lateef Olushola Salami
6
February, 2010
ABSTRACTFranchising as a concept is growing both in economic importance and as a topic of
interest to academicians, students, journalists, and politicians, and so on. (Hoy and
Stanworth, 2003:1).
Franchising is a joint venture between an independent person (the franchisee) and a
business owner (the franchisor) who wants to expand its activities. The franchisor sells
the right to use the company’s trademark and business format to the franchisee in return
for an initial fee and royalty payment. It is another contractual form of
internationalization.
The research offer a comprehensive overview of franchising in retail food industry, its
critical relevance for business expansion and growth and to give readers a sense of what
it looks like in real life situations.
The research examines the current status and performance of the strand McDonald’s
restaurant and its relationship with the franchisor’s activities. It examines the effects of
the economic conditions (recession) on the overall performance (including the growth
and expansion) of the restaurant as a franchised outlet. The importance of the
franchisee-franchisor relationships on the entire organizations growth and expansion
success were also discussed.
The Strand Mc Donald’s is one of the franchised McDonald’s restaurants situated in
west end and the city. Its busy nature and strategic location in the central business
district of London inspired the author’s choice of selecting the restaurants for this
research. The above description assisted the researcher in choosing the study area as the
best area to conduct this research because of the concentration of other franchised
businesses like McDonald’s with its strong brand name and its market recognition (vast
market share) among the fast food business sector globally.
Data collections for this research were based on the primary and secondary sources, and
were analyzed qualitatively to come up with different opinions on the importance of
franchising as business growth and expansion. The primary source includes use of oral
and structured interviews, and participant observations, while the secondary sources
7
include informations from business agencies, online journals, newspapers, articles.
Different textbooks were reviewed to gain a wider scope and understanding of the
research aims and the objectives.
The researcher believes that the outcome and perspective of this research will lend a
hand to entrepreneurs, shareholders, suppliers and other stakeholders involve in
franchised business. It will also be useful among academicians as it discusses some
useful models and relate them to franchising practices which points out to the
practicality of what were read and discuss in the literatures.
The research findings indicated and conclude that, franchising play a major role in the
business development and expansion process though can be affected by unstable
economic situations, but the effect is not significant in most cases as this research
identified.
Recommendations were made on what need to be done to improve on franchising
practices among business entrepreneurs and at the end the research points out the lapses
in this study and recommends on what need to be improve on for the future research
studies.
8
TABLE OF CONTENTSTitle Pages
Title Page................................................................................................................... ii
Supervisor’s Declaration............................................................................................ iii
Declaration/ Statement................................................................................................iv
Dedication....................................................................................................................v
Acknowledgement......................................................................................................vi
Abstract.....................................................................................................................vii-viii
Table of contents........................................................................................................x-xiii
List of Tables..............................................................................................................xiv
List of Figures.............................................................................................................xv
CHAPTER ONE (INTRODUCTION)....................................................................1
1.0 Introduction............................................................................................................1
1.1 Research Background............................................................................................1-2
1.2 Organization Background......................................................................................3-4
1.3 Research Problem...................................................................................................4-5
1.4 Significance of the Study.......................................................................................5-6
1.5 Research Aim and Objectives................................................................................5-6
1.6 The Scope of the Study...........................................................................................6
1.7 The Study Area........................................................................................................6
1.8 Structure of the Research.........................................................................................7
CHAPTER TWO (LITERATURE REVIEW)........................................................8
2.0 Introduction.............................................................................................................8
2.1 Definitions of Franchising Concept.......................................................................8-9
2.2 Brief History of Franchising..................................................................................9-11
2.3 Types of Franchising...............................................................................................11
2.3.1 First Generation/Product Distribution Franchising..............................................11
2.3.2 Second Generation/Business Format Franchising…………………………….11-12
2.4 Franchise Arrangements..........................................................................................12
2.4.1 Single Unit (Direct Unit) Franchise.....................................................................12
9
2.4.2 Multi Unit Franchise.........................................................................................12-13
2.4.2.1 Area Development Franchise.........................................................................13
2.4.2.2 Master Franchise............................................................................................13
2.5 Building Strong Foundation for a Successful Franchising Strategy....................13-15
2.6 Important of Franchising to Business Growth and Expansion.............................15-17
2.7 The Socio- Economic Contribution of Franchised Business to the Economy.....17-23
2.8 Franchising as a Strategic Relationships..............................................................23-25
2.9 Assessing the Risks in Business Franchising.......................................................25-26
2.10 The Franchise Agreements.................................................................................26-27
2.11 The Concept of Proprietary Advantage.............................................................28
2.12 The Concept of Franchise opportunism.............................................................28
2.13 Diffusion of Franchise Systems.........................................................................28-30
2.14 International/ Global Franchise Network Expansion.........................................30-31
2.15 International Expansion Problems.....................................................................31-32
2.16 A Model of Franchising.....................................................................................32-34
2.17 Franchising Theories..........................................................................................34
2.17.1 Resource Scarcity Theory...............................................................................34-35
2.17.2 The Agency Theory.........................................................................................35
2.18 Principle Research Question...............................................................................36
CHAPTER THREE (RESEARCH METHODOLOGY).....................................37
3.0 Introduction...........................................................................................................37
3.1 Research Philosophy (Paradigm).........................................................................37-38
3.2 The Business Research Processes...........................................................................38
3.3 Research Approach.................................................................................................38
3.3.1 Exploratory..........................................................................................................38
3.3.2 Descriptive...........................................................................................................38
3.3.3 Causal /Explanatory.............................................................................................39
3.4 Research Strategy...................................................................................................39
3.4.1 Quantitative Research..........................................................................................39
3.4.2 Qualitative Research.........................................................................................39-40
3.5 Qualitative Versus Quantitative..............................................................................41
3.6 The Research Design Process..................................................................................41
3.7 Sampling Methods................................................................................................41-42
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3.8 Method of Data Collection.....................................................................................42
3.8.1 Interview Method................................................................................................43
3.8.2 Observation Method............................................................................................44
3.8.3 Questionnaire Method.........................................................................................44
3.8.4 Documentary Review........................................................................................44-45
3.9 Method of Data Analysis.......................................................................................44
3.9.1 Quantitative Data Analysis..................................................................................45
3.9.2 Qualitative Data Analysis....................................................................................45
3.10 Validity, Reliability and Generalisability of Research.........................................46
3.10.1 Validity..............................................................................................................46
3.10.2 Reliability...........................................................................................................46
3.10.3 Generalisability...................................................................................................46
3.11 Research Ethics.....................................................................................................46
3.12 Limitations of the Research................................................................................46-47
3.13 Summary................................................................................................................47
CHAPTER FOUR (FINDINGS AND DISCUSSIONS)..........................................48
4.0 Introduction………………………………………………………………………..48
4.1 Respondents Demographic Information -Part A…………………………………..48
4.2: Interview Findings (Responses From The Franchisee’s Point Of View)-Part B….48
4.2.1: Position and Roles of the Respondents……………………………………...48-49
4.2.2: Number of Years Working For the Company…………………………………..49
4.2.3: Duration of the Restaurants Involvement in Franchise Agreement with
McDonald’s…………………………………………………………………………....49
4.2.4 Impacts of Franchising (Business Format) On the Restaurants Growth and
Expansion………………………………………………………………………......49-50
4.2.5 Advantages of Being Part of “McDonald’s Franchise” Network……………….50
4.2.6 Contribution of the Franchisee- Franchisor Relationship to the Restaurants Growth
and Development.......................................................................................................50-51
4.2.7 Risks Associated In Adopting Franchising As A Business Strategy by the
Restaurant…………………………………………………………………………..51-52
4.2.8 Impact of the Recession the Restaurants Growth and Development………...52-53
4.2.9: Benefits/Contributions of McDonald’s to the Socio-Economic Growth of United
Kingdom…………………………………………………………………………….....53
11
4.2.10 Challenges Facing the Restaurant………………………………………….53-54
4.2.11 Recommendations of Franchising……………………………………………..54
4.3: Interview Findings (Responses from Franchisor’s Point Of View)……………...54
4.3.1: Position and Roles of the Respondents in the Company………………….......54
4.3.2 Number of Years of Employment with McDonald’s U.K……………………..55
4.3.3 Year of Mc Donald’s Establishment and Franchising in the United Kingdom…55
4.3.4 Advantages of Franchising on the Organization’s Growth and Development..55-56
4.3.5 Importance of the Relationship to McDonald’s Development………………..56-57
4.3.6 Risks Taken Adopting Franchising as A Business Strategy…………….........57-58
4.3.7 Impacts of The Economic Recession on the Organization’s Growth and
Development…………………………………………………………………………...58
4.3.8 McDonald’s Contribution’s To the Socio-Economic Growth of U. K…….....58-59
4.3.9 Challenges Facing the Organization (McDonald’s)...……….…………………...59
4.4 Discussions of the Findings from the Franchisee and the Franchisor…………..60-64
4.5 Summary……………………………………………………………………………64
CHAPTER FIVE (CONCLUSIONS AND RECOMMENDATIONS)…….........65
5.0 Introduction……………………………………………………………………….65
5.1 Conclusions………………………………………………………......................65-67
5.2 Recommendations…………………………………………………………………67
5.2.1 Franchisee………………………………………………………………………..67
5.2.2 Franchisor and Prospective Franchisee…………………………………………..68
5.2.3 Future Research………………………………………………………………68-69
REFFERENCES………………………………………………………………….70-76
BIBLIOGRAPHY………………………………………………………………...77-83
APPENDICES………………………………………………………………….…84-92
Appendix 1 Macdonald’s Condensed Consolidated Statement of Income Report
2009…………………………………………………………………………………....84
Appendix 2 Monthly Sales Figures for the Strand Mc Donald’s For Year 2008 And
2009…………………………………………………………………………………....85
Appendix 3 Glossary of Franchising Terms…………………………………….….86-87
12
Appendix 4 Interview Introduction Letter…………………………………………….88
Appendix 5 Interview Schedule/ Questions for Franchisee (Managers)……………89-90
Appendix 6 Schedule/ Questions for Franchisor…………………………………....91-92
13
LIST OF TABLESCHAPTER TWO…………………………………………………….PAGE NUMBER
2.1 Total Number of Employed In U.K Franchising………………………………..19
2.2 Number of United Kingdom Franchised Units by categories between Year 2005 and
Year 2008……………………………………………………………………………21
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LIST OF FIGURES
CHAPTER TWO……………………………………………………PAGE NUMBER
2.1 Diagram showing the key elements of a franchise network system…………………9
2.2 Diagram showing two major types of Franchising ………………………………...12
2.3 Bar chart showing total number of employed in U.K franchising………….............19
2.4 Multiple Bar-chart showing Number of United Kingdom Franchised Units by
Categories........................................................................................................................21
2.5 Diagram showing franchising relationship/ Agreement……………………............27
2.6 Diagram showing factors influencing the development of franchising: A Model…33
CHAPTER THREE......................................................................................................
3.1 Diagram showing the Saunders’s et al Research Onion Ring……………………...40
3.2 Diagram showing Zikmund Stages of Research Process…………………………..41
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vhjjcCHAPTER ONEINTRODUCTION
1.0 INTRODUCTION.
Franchising has become one of the most recognizable business formats and an
internationalization strategy for business practitioners globally and also in the United
Kingdom especially in the way entrepreneurs are operating under other people’s
business concept. It has emerged over the years as a popular expansion strategy for a
variety of product and service companies.
This research critically examines how franchising play vital role in retail business
growth and expansion in the food industry, using the Strand Mc Donald’s as a case
study. The research looks at the importance of franchising, and will be very informative
for organizations and stakeholders directly and indirectly involves in franchising
business.
This chapter looks at the research background, organization background, the research
problem, the aim and objectives of the study, the scope and limitations, brief
introduction of the study area and the structure of the research.
1.1 RESEARCH BACKGROUND.
Franchising is basically a specialized form of licensing in which the franchisor not only
leases intangible property (normally a trademark) to the franchisee but also insists that
the franchisee agree to abide by strict rules as to how it does business. The franchisor
will often assist the franchisee to run the business on an ongoing basis, (Hill 2008:408).
It is similar to licensing, although franchising tends to involve longer term commitments
than licensing.
Franchising is a method of distributing products or services. At least two levels of
people are involved in a franchise agreement, namely: the Franchisor, who lends his
trade mark or trade name and a business system; and the Franchisee, who pays a royalty
and often an initial fee for the right to do business under the franchisor’s name and
system of operations, technically, the contract binding the two parties is the franchise.
16
Franchising has emerged in recent years as a highly significant strategy for business
growth, job creation, and economic development at both local and international retail
business arena, (Hoffman& Prebble, 1995:80). It has moved from traditional product
(trade mark) areas such as automobiles, petroleum and soft –drink bottlers to be a more
proven format business concept.
Over 80% of Mc Donald restaurants worldwide are owned and operated by local
businessmen and women. They adapted Ray Kroc’s franchising business strategy of
providing high standard of quality, friendly services, cleanliness and value, (QSCV).
Also in the hotel industry, companies such as Marriott, Holiday Inn, Hilton and Accor
have employed franchising as their primary growth strategy globally.
Of course, the most well known restaurant franchise in the worlds is McDonalds. So
much has been written about Ray Kroc and the McDonalds’ brothers that McDonalds
and Crock have become an institution. The first McDonalds were opened in Des
Plaines, Illinois, in 1955 and soon afterward, more McDonald’s outlets continued to
open. Today there are more than 30,000 McDonalds in 118 countries. There is no doubt
that when it comes to franchising and fast foods in general, McDonalds is the leader of
the pack. (Teixeira, 2005:20).
The international franchise association estimates that American consumers spend
approximately 1.3 trillion dollars on franchise goods and services on an annual basis.
(Teixeira 2005:19). This shows that the franchise strategy is one of the important
aspects in expanding business and economic development.
Different research methods will be used to analyze data/ findings for this research, and
the sources of data will include observations and interviews.
This research therefore, focuses on the importance of franchising as a business growth
and expansion strategy from both the franchisee and the franchisors perspective. It also
examines the relationship that exists between the franchisee and the franchisor .The
benefits of franchising to Mc Donald’s (franchisors) in expanding its business globally
and its international market position through leveraging its brand name and business
17
process through the utilization of the capital and local management of its franchisees
will also be examining in this research.
1.2 ORGANIZATION BACKGROUND.
McDonald's Corporation (McDonald's) is one of the world's largest foodservice retailing
chain. The company is known for its burgers and fries which it sells through more than
31,900 fast-food restaurants in over 100 countries. The organization originated and
operates mainly in the US and has expanded globally to over 100 countries including
United Kingdom, where the European headquarter is situated and constitute major part
of the European sales/ turnover. The organization’s corporate headquarter is located in
Oak Brook, Illinois, U.S.A. and employs about 400,000people. Web1
The organization recorded revenues of $22,744.7 million at the end of the year 31st Dec,
2009, an increase of 3.8% over FY 2008. The growth in the organization combined
operating margin to 30.1%, consolidated operating income increase of 6% over Year
2008, the earning per share was increase to $4.11 which is increase by 9% over Year
2008.Web1
McDonald's restaurants offer a substantially uniform menu, although there might be
geographic variations. In financial year 2009, the company operated more than 31,900
fast food restaurants in over 100 countries in the following geographic segments: the
US; Europe; Asia Pacific, Middle East and Africa (APMEA), Latin America and
Canada. Web 1
The company is one of the world's largest food service retailing chain, preparing and
serving a range of foods. All McDonald's restaurants offer a standard menu, which
comprise food items such as hamburgers, cheeseburgers, chicken sandwiches, Big Mac,
Quarter Pounder with Cheese, Filet-O-Fish, Chicken McNuggets, French fries, salads,
milk shakes, desserts and ice cream sundaes. Some McDonald's restaurants offer
additional food items to suit local taste and preferences and sell a variety of other
products during limited-time promotions. (Mc Donald’s Corporation Company profile,
June 2009, p5) available at Datamonitor, Web 2
McDonald's generates revenues through company operated restaurants and franchisee
restaurants where over 6,500 are operated by the company and over 25,400 are operated
by franchisees and affiliates. The company's revenue comprises sales from company
18
operated restaurants and fees as well as rent from franchisees and affiliates. Under the
franchise arrangement, the franchisees invest in the equipment, signage, seating and
decor, while the company owns or leases the land and building. Franchisees pay the
company service fees and rent for premises. A service fee is set as a percentage of sales,
while rent and other terms of occupancy are stipulated in the franchise agreement,
which is drawn for a period of 20 years. (Mc Donald’s Corporation Company profile,
June 2009, available at Datamonitor June 2009) Web2
The company and its franchisees as well as affiliates source purchase food, packaging,
equipment and other goods from approved suppliers. The company maintains quality
standards through assurance laboratories around the world. A quality assurance board,
including the company's technical, safety and supply chain specialists, provide guidance
on all aspects of food quality and safety. The major competitors of McDonald’s include
Starbucks corporations, Burger Kings Inc, Kentucky Fried Chicken (KFC), and other
upcoming high streets food restaurants worldwide. (McDonalds Corporation Company
profile, (Datamonitor) June 2009:22) Web 2
In October 1974, the company opened its 3000th restaurant and the first in the U.K in
Woolwich, south-east London, with the U.K headoffice in Hampstead, North London
(Business franchise, Nov.2009:18). And in 1986, the first U.K franchisee- operated
restaurant opened in Hayes, Middlesex, (Business franchise, 2009:18). The first Drive-
thru restaurants opened in U.K at fallowfield, Dudley, Neasden and Coventry.Web 3
1.3 RESEARCH PROBLEM.
Research problem forms the basis of most academic research study. It is based on this
that the aim, objectives and the research questions are usually formulated. Most
researches are designed to tackle and answer specific problems, for instance business
problems.
Despite the popularity of franchising among business organizations and entrepreneurs as
a business expansion and development strategy, it still unacceptable to some
entrepreneurs because of the disadvantages and risks involved. To these groups of
individuals, setting up and management of owned business is the best option, no matter
which forms it take to start. The assumption is that franchising is a system of building,
expanding and adding value to someone else existing business, which many
entrepreneurs will always avoid, as Norman, (2006) indicated “Many conclude the time,
19
effort, money and shift in emphasis from running a business to helping others run
businesses is not right for their companies”,(p3)
On the other side, some entrepreneurs choose franchising as their best business start up
option because of the merits and less risk involved in starting business. To these pro-
franchising entrepreneurs, it plays a major role in business growth and expansion,
especially in retail food industry globally.
This research, therefore critically examines these arguments and answer the question
“how” is franchising vital to retail business growth and expansion according to the
views of the pro- franchising business entrepreneurs.
1.4 SIGNIFICANCE OF THE STUDY.
Theoretically, a broad range of literature does exist on franchising concepts and in most
instances, there seems to be gap between theory and practice in most business
organizations. However, it is significant to find out the practicality of the literature in
real life situations. It is essential therefore, to carry out this study in order to find out
whether in reality the ideas provided by literatures are actually revolving around
management issues and applied to business organizations.
The findings of this study will assist a wide range of stakeholders interested in
franchising business including the government, private sectors, and local authorities to
increase the general understanding and knowledge of franchising particularly in the
food sector. To the researchers, academicians, it helps deepen further research in
business development who will be interested in franchising in the future.
1.5 RESEARCH AIM AND OBJECTIVES.
The main aim of this dissertation is to investigate how franchising play an essential role
in retail business growth and expansion in the food industry.
1.5.1 Research Objectives.
In order to achieve the above stated aim, the following objectives were specified:
Analyze the impacts and importance of franchising (business format) on
organizations (business) growth and expansion.
Investigate the importance and contributions of the franchisee- franchisor
relationship on the organization’s growth and development.
20
Examine the risks involved in the franchising relationship and ascertain its
impacts on business growth and development.
Determine whether economic conditions (recession) affects the organization’s
growth and development as a franchised business.
Assess the benefits/contributions of the organization (McDonald’s) as a
franchised business sector to the socio-economic growth of the economy.
1.6 THE SCOPE OF THE STUDY.
The study was conducted in London (West End), using one of the McDonald’s
restaurants as the study. The content of the study was to investigate and understand the
contribution(s) of franchising to business growth and expansion in retail business sector.
1.7 THE STUDY AREA.
London is the capital city of England and the United Kingdom. It remains one of the
popular cities with 32 boroughs, of which 13 are inner London and 19 constitute the
outer London. (Office for National Statistics Online). Web 4
It is a growing city, spreading out and swallowing many villages and towns in the south
eastern England. This has created lots of conflicting definitions about London and
Greater London with varied population respectively. As the capital city, it occupies over
6,267 square miles (16,043km2) and the London population is heavily concentrated at
about 4,539 people per sq km/ 11,568 per sq mi. Web5
The April 2001 census indicated that London population was 7,172,000 which
represented 14.6 percent of the total Britain population. The population as of mid 2005
was thought to have been increased to 7,517,700 of which about half lives in inner and
central London and the remaining lives in outer boroughs. Web 5
The study area lies within inner London borough of Westminster in the central business
district, It is very close to the seat of power, the parliament, international business
outlets, and tourist attractions like the London eye, Trafalgar square, National Art
gallery.
1.8 STRUCTURE OF THE RESEARCH.
21
Chapter One (Introduction): This state clearly the purpose of the dissertation, it includes
background and the significant of the study, statement of the research problems,
organization background, the research aim and objectives, scope of the study and brief
description of the study area.
Chapter Two (Literature Review): Deals with the academic review of texts, journals,
articles, and so on, relevant to this research enquiry. It also discusses model and relevant
theories on the subject matter.
Chapter Three (Research Methodology): comprises the methodology used for this study.
It includes the styles and techniques chosen in collecting primary and secondary data/
informations for this research purpose.
Chapter Four (Findings and Discussions): The chapter that report the findings of the
interviews and descriptions of both primary and secondary informations gathered during
the research.
Chapter Five (Conclusions and Recommendations): This chapter set out the main
findings of the dissertations linking it with the literature reviews and the research
findings. It also sets out clear recommendations which came out of the whole research.
CHAPTER TWO
22
LITERATURE REVIEW
2.0 INTRODUCTION.
This chapter provides a review of relevant literatures on franchising. The chapter serves
as a base to throw more light on the importance of franchising concept and the roles it
plays in business growth and expansion. The literatures were selected and critically
evaluated in a bid to sift the relevant informations, and portray the opinions of relevant
authors/writers. It offers academic insight to research previously conducted on the
importance of franchising to retail business growth. Lastly, the section acknowledges
the principal research questions used for this study.
2.1 DEFINITIONS OF FRANCHISING CONCEPT.
Hill, (2008) defines franchising “as a specialized form of licensing in which the
franchisor not only sells the intangible property (normally a trademark) to the
franchisee, but also insists that the franchisee abide by the strict rules as to how it does
business”, (p.408). It usually involves long term commitments than licensing.
On the other hand, Business format franchising is a joint venture between an
independent person (the franchisee) and a business owner (the franchisor) who wants to
expand its business activities usually governed by a contract. This gives the franchisee
the right to operate using the franchisors trade name/mark, in accordance with a
business format or blueprint. All aspects of the franchisees business are in most cases
strictly controlled including image, products or service, systems and administration,
(HSBC Bank, 2009:1). The franchisee in return pays certain amount of fees for the right
using franchisors trademark.
Figure 2.1: Diagram showing the key elements of a Franchise Network System.
23
Brand
System
Support
FRANCHISOR Agreement FRANCHISEE
Source: Web3
Firms use franchise arrangements to extend scarce firm resources, because the
franchisee puts up both an initial fee and much of the capital investment, franchisors are
able to expand their markets without having to generate capital by themselves, and in
most cases exploit on the knowledge of the local entrepreneurs in expanding their
business. This is an attractive option, particularly in mass consumer services such as fast
food that require the construction of many units to achieve brand name recognition and
increased market share like McDonald’s Restaurants.
2.2 BRIEF HISTORY AND DEVELOPMENT IN FRANCHISING.
Franchising is highly developed in the USA, although popular in the UK, but a recent
phenomenon. Its development dates back to the end of the American civil war (1865),
when the singer sewing company franchised exclusive sales territories to financially
independent operators. In 1898, General motor’s used independently owned businesses
to increase its distribution outlet. (Lancaster &Reynolds, 2005:160).At some point,
there were some form of disagreements and arguments among historians in the United
States regarding when the franchise system first started.
According to Blythe &Bennett,(2002),
“Franchising began to gain acceptance as a viable business
arrangement with the growth of automobile industry, and also
in the petroleum industry during the 1930’s”, (p.234)
Franchising became one of the fastest growing retailing business in the United Kingdom
in recent years.It was introduced into the UK in the early 1950’s, and has become
respectable and often very profitable business concept as a result of explosion in the
24
number of franchises being operated. Today franchising encompasses products from
pipes to pastries and includes such well known names as Body Shop, Kentucky Fried
Chicken, McDonalds, and so on. (Lancaster &Massingham, 1999:269).
For instance, Over 80% of Mc Donald restaurants worldwide are owned and operated
by local entrepreneurs. They adapted Ray Kroc’s franchising business strategy of
providing high standard of quality, services (friendly), cleanliness and value, (QSCV).
Also in the hotel industry, companies such as Marriott, Holiday Inn, Hilton and Accor
have employed franchising as their primary growth strategy globally.
The first McDonalds were opened in Des Plaines, Illinois, U.S.A in 1955 and afterward,
there has been expansion in outlets. Today, McDonalds has over 300,000 restaurants in
119 countries outside the U.S or in non-traditional site locations in the US. There is no
doubt that when it comes to franchising and fast foods in general, McDonalds is the
leader of the pack. Of course, the most well known restaurant franchise in the world
today is McDonalds and so much has been written about Ray krok and the McDonalds’
brothers that McDonalds and Crock have become an institution. (Teixeira, 2005:20-21).
Teixeira, (2005), indicated that
“during 1960s and 1970s, the growth of franchise industry
exploded and continued to gain appeal with a boom mostly in
Europe and particularly in the United Kingdom on an
increased rate yearly”,(p.21)
According to Ghauri & Cateora (2005:280), franchising has become the fastest growing
market entry strategy, it is often among the first types of foreign retail business to open
in the emerging market economies of Eastern Europe, the former USSR, and China.
It has become successful especially in retail food business, and has become a major
business growth, development and marketing strategy globally. Franchising can be
viewed from these three perspectives in any business environment.
McDonalds remains an excellent global example of organizations that has grown
substantially with franchising business strategy, (Hill, 2008:408).
“Franchising explosion in recent years however has
increasingly saturated the domestic market, where businesses
25
are opening in airports, sports stadiums, colleges, hospitals,
parks, casinos, pools and other strategic locations globally”.
(Kotler &Keller, 2006:508)
Lastly, the surge in franchising has been underpinned by the efforts of different bodies
who regulates and has developed codes of practice for franchising entrepreneurs, and in
doing so, has recorded progress and successful at reducing the risks scared by both
franchisees and the franchisors including the International Franchise Association, (IFA),
British Franchising Association, (BFA), and various franchising organizations globally,
(BFA& NatWest Bank, 1991).
2.3 TYPES OF FRANCHISING.
Monir (1999:164) identified two major types of franchising.
2.3.1 FIRST GENERATION/PRODUCT DISTRIBUTION FRANCHISING simply
sells the franchisor’s products and is supplier-dealer relationships. In product
distribution franchising, the franchisor licenses its trademark and logo to the franchisees
but typically does not provide them with an entire system for running their business.
This is often common with soft drink-bottling industries, automobile, and in petrol
retailing.
2.3.2 SECOND GENERATION/BUSINESS FORMAT FRANCHISING by contrast,
the franchisor transfers a much more comprehensive business package (the format) to
the franchisee. This contains most of the elements needed by the franchise to establish
and replicate the business. The buyer also receives detailed instructions and guidance on
how to operate the franchise successfully, managerial expertise, training and perhaps
financial support if need be.
Figure 2.2: Diagram showing two major types of franchising
FRANCHISING
26
PRODUCT DISTRIBUTION BUSINESS FORMAT
Source: Beshel (2001), p.2
There have been other divisions of franchising as recognized by different authors
identified as important for the understanding of this research. Justis & Judd, (2007:56)
identifies two major types of franchising namely: product and trade name and business
format franchising. Nathan, (2008:54) also classifies business format franchising into
six major groupings as follows: executive, job, investment, management, retail, sales
and distribution franchise. Also, on the other hand, Murray (2006:23), identifies four
major categories as, Job, Retail, Management and Investment Franchising.
2.4 FRANCHISE ARRANGEMENTS.
Beshel (2001:3), reiterated that because of the possibilities of so many franchisors,
industries and range of investments, there exists different types of franchise
arrangements available to business owner. Two types of franchise arrangements were
identified:
Single-Unit(direct) franchise
Multi-Unit Franchise ( Area development and Master development franchise)
2.4.1 SINGLE-UNIT (DIRECT-UNIT) FRANCHISE: is an agreement where the
franchisor grants a franchisee the rights to open and operate one franchise unit. This is
the simplest and most common type of franchise. It is possible however, for a franchisee
to purchase additional single-unit franchises once the original franchise unit begins to
prosper, it is then considered a multiple, single-unit relationship.
2.4.2 MULTI-UNIT FRANCHISE: An agreement where the franchisor grants a
franchisee the rights to open and operate more than one unit. Beshel (2001:3), also
identifies two ways in which multi-unit franchise can be achieved:
An area development franchise or
A master franchise.
27
2.4.2.1 Area development franchise: The franchisee has the right to open more than one
unit during a specific time, within a specified area. For instance, a franchisee may agree
to open 5 units over a five year period in a specified territory, while
2.4.2.2 Master franchise: This agreement gives the franchisee more rights than an area
development agreement. In addition to having the right and obligation to open and
operate a certain number of units in a defined area, the master franchisee also has the
right to sell franchises to other people within the territory, known as sub-franchises.
(Beshel, 2001:3-4).
Blair & Lafontaine (2005:90) and Philip et al, (2006:77) also identifies the above four
classifications as forms of franchising where all the four were grouped together.
2.5 BUILDING A STRONG FOUNDATION FOR A SUCCESSFUL
FRANCHISING STRATEGY.
A successful franchising concept needs an appropriate business strategy and lots of facts
have been identified as making a business appropriate to be franchised and make it
worthwhile to invest in.
According to HSBC Bank, (2009:1), a well established and proven business format
franchise from the franchisee perspective should provide an established market for the
franchisors products and services, proven sales, marketing and operational procedures,
the benefit of an established business name, training (ongoing support and help in
running the business), also, where appropriate, help in finding, fitting out and furnishing
premises.
Hoffman & Prebble (2008:68) also add some factors that influence the appropriateness
of a business concept using franchising including: valuable System to sell, proprietary
process/ advantage for making the product in getting to the end customers, a satisfactory
brand/ trade name like McDonalds which will be acceptable to the larger population,
and high Profit Margin business.
On the other hand, Murray (2004:67), mentions possibilities in which potential
franchisee get a proven business format and support from the franchisor, some of which
includes, an entire business concept with no bits missing out, assistance with operating
28
manuals, trademarks, logos, patents, standard designs for the layout of the premises,
colour and pattern of staff uniforms, accounting and financial systems, training and help
to set up the business, continuing help and back-up once the business is operating, legal
right to operate in an exclusive territory and marketing, public relations and advertising
support, decor in case of retail franchises, the franchisor will provide design and advice
for the fitting and decoration of the shop and the installation of any equipment
necessary, records, the franchisor will provide the franchisee with sales report and
accounts forms to assist the franchisee maintain accurate financial report.
On the franchisors perspectives, Sherman (2003:414) explains that in order for business
growth through franchising, a secure foundation from which company’s franchising
programme has to be launched. He uses the concept of the “responsible franchising” as
the only way to avoid failure and to ensure a harmonious relationship with the
franchisees. Some of the key components of a responsible franchising strategy
according to Sherman (2003:414) includes, proven prototype location/ chains of stores,
strong management team, sufficient capitalization, distinctive and protected trade
identity, comprehensive training programmes franchisees, proprietary and proven
methods of operation and management, field support staff who are skilled trainers and
communicators, set of comprehensive legal documents, demonstrated market demand
for the company’s products and services, set of carefully developed, uniform site
selection criteria and architectural standards, genuine understanding of the competition,
relationships with suppliers, lenders, real estate’s developers, franchisee profile and
screening system, an effective system of reporting and record-keeping, research and
development capabilities, communication system, national, regional and local
advertising, and so on.
Sherman (2003) indicated that “Responsible franchising starts with an understanding of
the strategic essence of the franchising structure”, (p.417). He identified three critical
components of the franchise systems from the franchisors perspective. The brand, which
creates the demand, allowing the franchisee to initially obtain customers, the brand
includes the company’s trademarks and service marks, its trade dress, decor and all of
the intangible factors that create customer loyalty and build brand equity, the operating
system, which essentially delivers the promise, thereby allowing the franchisee to
maintain customer relationships and build loyalty, the ongoing support and training that
29
the franchisors provide, supplying the franchisee with the tools and tips to expand its
customer base and build its market share.
Also, customers become important in most franchised business, and their satisfaction
need to be guaranteed at anytime, for organization’s growth and success.
Sherman, (2003,) went further to acknowledge the importance of customers in any
responsible franchising business concept. He indicated that
“the responsibly built franchise system is one that provides
value to its franchisees by teaching them how to get and keep
as many customers as possible who consume as many
products and services as often as possible”,(p.417).
2.6 IMPORTANCE OF FRANCHISING TO BUSINESS GROWTH AND
EXPANSION.
Franchising has gained much popularity in modern business environment over the
years, because of its success in contributing to business growth and expansion globally
which is the primary aim of this research. This can be viewed from the perspective of
the franchisee and franchisor respectively.
Sherman (2003) acknowledges the growth of a business via business-format franchising
in the United States. He maintains that
“The ability to obtain operating efficiencies and economies of
scale are among the reasons for franchising and one of the key
components of a responsible franchising strategy is a proven
type of location that will serve as a basis for a franchising
strategy”, (p.411).
Over the past three decades, franchising has emerged as a popular expansion strategy
for a variety of product and service companies. Sherman, (2003), points to the
importance of franchising, he states that
“recent international franchise association (IFA) statistics
demonstrates that retail sales from franchised outlets comprise
nearly 50% of all retail sales in the U.S, estimated at more than
$900 billion and employing some nine million people in 2000”.
(p.411).
30
Also in his view, Sherman,( 2003:411), points out to what has made franchising so
popular globally as a business development and expansion strategy. From the
franchisors view, franchising represents an efficient method of rapid market penetration
and product distribution, without the typical capital costs associated with internal
expansion.On the other hand, from the franchisees perspective, franchising is regarded
as a method of owning a business but with a less severe chance of failure due to the
array of supports and trainings (initial and ongoing) offered by the franchisor.
According to Shay (2009:6) “franchising is the key to Global Economic Recovery and
that franchise businesses represent some of the world’s best brands”. He went on to
explain the rate at which franchise business are expanding globally.
“Franchise businesses around the world have seen steady growth in the
past decade particularly in most emerging economies, and more often
International Franchise Association members are eyeing overseas
expansion as an important way to diversify their portfolios”. (p.6)
HSBC (2009:1), identified some reasons why entrepreneurs (franchisee) will be willing
to adopt franchising as a strategic business option instead of setting up owned business
and the roles of franchising to business growth and expansion including, proven format,
the franchisee enjoy the advantages of an established business, such as a tried and tested
product /service, set of established operational guidelines, trade name, particularly
where a franchise operation is well established, customers will be familiar and
comfortable with the product or service that are been offered, Training and support,
national advertisement and promotional support undertaken by the franchisor both
locally and nationally.
Aboud (2009) also acknowledges the importance of franchising in business
development globally. He said that
“Franchising is a business format that has no boundaries to success,
anyone from any walk of life can become an entrepreneur and enter into
a profitable business venture and the model is ideally suited to small and
medium-sized enterprises. It encourages small business growth in every
imaginable business sector and is a great catalyst for job creation, skills
training and wealth creation”, (Aboud, 2009).
31
In their views, Shook & Shook (2008:56) also indicated franchising is a small business
development and a viable growth strategy for small firms. It is both a means of raising
capital for small firm’s development and of harnessing motivation and commitment. In
most cases the problems experienced by franchisors are not franchise specific and many
of the problems associated with small firm growth remain.
Norman, (2006:3) explains that as franchising has grown and succeeded for thousands
of companies, many more have explored this avenue for growth globally. She also
identifies some characteristics of a business where franchising can be regarded as
growth vehicle. The business needs to prove its concept with a successful, profitable
prototype store and office, the business must have systems for doing every aspect of the
business, the business must be capable of being replicated in other markets, and the
business should have a distinctive niche and brand to differentiate it from competitors.
(Norman, 2006:3).
Finally, Aboud (2009), concludes “that small business that join a franchise, enjoy
instant visibility in the market, better brand recognition, pooling of advertising and
marketing resources and expertise to help improve the business operations and
systems, therefore rather than re-inventing the wheel, they can ride on the success of the
franchisor”.
2.7 THE SOCIO-ECONOMIC CONTRIBUTION OF FRANCHISED BUSINESS
TO THE ECONOMY.
The importance and impact of franchising in economic growth and development
globally is very important and it has contributed immensely to the vibrancy of many
economies globally since its inception. Some of the impacts include the capital flow due
to the franchising activities in the economy, tax paid to government through franchising
activities, the transaction activities, employment generation and so on.
Aboud, (2009:1), throws more light on the socio-economic contributions of franchising,
“franchising is without doubt, the answer to unemployment and has proved
worldwide to be the job creator of the future”, and over the years,
franchising has shown remarkable strengths in weathering the economic ups
32
and downs and even in the face of the recent global slowdown, the franchise
sectors has remained upbeat and a significant global force, (p1-3).
The impact of franchising on the economic growth has gained much popularity in the
literatures which in most cases proved positive. For instance, Kotler &Keller (2006),
indicated that “franchising accounts for more than $1 trillion of annual U.S sales and
nearly one third of all retail transactions”,(p.508). They further indicated that more than
320,000 small businesses are franchises; employing one in every 16 workers in the U.S.
Franchising provides employment for more than 9 million Americans, Britons and in
most part of the European union, where franchising is increasingly developing. Recent
study conducted by PriceWaterhouseCoopers in the U.S indicated, there were 767,483
establishments in franchise systems in the United States in 2001 which provided
9,797,117 direct jobs to individuals, (Teixeira, 2005:19). Franchising encourages
individuals to become successful entrepreneur and enter into a profitable business
venture and has no impediments to success.
Franchising plays a major role in providing employment to individuals without a higher
education or specialized skills, it also provides first-time job seekers with an entry into
the business world and provides the jobless individuals and the elderly with an
opportunity to supplement their purse. (Shook &Shook, 1993:258).
Franchising has been a major player in the socio-economic development of this country
over the years. For instance, it has assisted most individuals rendered redundant as a
result of the recession in getting back to work. In his article, Shay (2009,) reiterated that
“franchising industry can create jobs, and increase the quality of goods and services to
improve the quality of life on a faster schedule”. (p.6)
The BFA/ NatWest Survey (2008), reveals that “franchising industry contributes 1.3%
of total employment in the UK, with 383,000 people employed out of a total working
population of 29 million people in 2007, and in 2006 and 2007 franchising employment
increased by 3%, outstripping the economy as a whole where employment grew by only
0.1%”. (p.12).
Table 2.1: Total Number of Employed in U.K Franchising.
33
Source: NatWest/British Franchise Association Franchise Survey 2008
Figure 2.3: Total Number Employed in U.K Franchising (000’s)
Source: Field Survey, 2010
Also the BFA/NatWest Survey, 2008 states
“Franchising has grown rapidly over the last 10 years and now makes an
important contribution to the U.K economy. In that period the estimated
economic contribution of the franchising industry has increased from £7
billion to £12.4 billion (calculated using the estimate for mean unit
turnover)”.franchising outstripped growth in the UK economy as a whole
34
Years Total number employed in
U.K franchising (‘000’s)
2003 330.0
2004 327.0
2005 365.0
2006 372.0
2007 383.0
2008 395.0
for the second year running. In 2007, national GDP grew by 3.1%
compared with an impressive 15% growth in the total turnover of the
franchising industry. As government (Office of National Statistics) data
indicates that economic growth is slowing, the strong performance of
franchising is a positive for the economy” (p.9)
There has been high profile employment recorded in McDonald’s restaurants in the U.K
as a franchised business organization. According to Sky News, (April, 2009),
McDonald’s has been a major contributor to the socio-economic development of the
U.K. To support this, it was revealed that in the Year 2009 the company created about
6,000 jobs in the United Kingdom, bringing the total U.K workforce to about 85,000 as
revealed by the U.K McDonalds chief executive on Friday the 24th Jan. 2009 by Mr.
Easterbrook.Web6 (Year 2009 Financial report).
McDonald’s involvement in community development programmes focus on education,
health, alleviating poverty, charity sponsorship etc, which varies according to local
needs around the world. For instance, in the U.K, McDonalds has been sponsoring
grassroots community football by sponsoring 4500 local clubs, training coaches,
sponsoring the F.A community shield football and sponsorship of the Ronald
McDonalds House of Charities in support of the families in the hospitals and homeless
individuals and so on.
Franchising systems operate across a broad range of industry sectors and vary in scale
from major hotels and high street stores to part-time sole traders. This testament to the
strength and diversity that the model has contributed to the increased economic turnover
of the U.K. Franchising is adopted by regional development agencies (and LEGIs) as a
means for stimulating regeneration. Franchising now contributes over £1 billion to the
local economies in seven of the twelve UK regions. While implied regional turnover is a
very rounded measure it clearly demonstrates the economic importance of franchising in
the UK. (BFA/NatWest Survey, 2008:24-25)
Table 2.2: Number of U.K Franchised Units by Categories between Year 2005 and
2008.
35
Source: NatWest/British Franchise Association Franchise Survey 2008.
Figure 2.4: Multiple Bar-Charts showing Number of U.K Franchised Units by
Categories
Source: Field Survey, 2010
Because of the popularity in franchising nowadays, entrepreneurs prefers to adopt
franchising because of less risks involved instead of embarking on individual business
36
Sectors 2005 2006 2007 2008
Business and
Commercial
Service
5075 5205 5525 5685
Hotel and
Catering
7050 7400 8100 5255
Personal
service
47,40 4950 5900 6200
Store
retailing
4787 4860 5100 5250
Property
Service
6535 6575 6650 6700
Transport
and Vehicle
Service
2575 2560 2925 3150
Total 30760 31600 34200 35240
set up, and according to the literatures and observations, the largest franchise sectors are
represented within the hospitality industry (food, restaurants, and lodging sectors).
Hoy& Stanworth (2003), argued “Business format franchising has been the primary
driver of the extraordinary growth experienced in the restaurant, hotel and recreation
sectors of the hospitality industry”.
Aboud, (2009), maintains that franchising has yielded unprecedented results globally.
For instance in the United States, which leads the field in franchising success, about
50% of all retail business is conducted by franchised networks. The U.S franchise
industry has over $1.5 trillion in sales annually, while 80% of private businesses will
eventually fail, less than 5% of the nations franchises fail yearly. He stressed further,
that with more than 760,000 franchised businesses, a new franchise opens somewhere in
the U.S in every 8 minutes, employing around 9.7 million people.
Aboud(2009), also takes a critical look at other economy outside the U.S and Europe,
that is really doing well with franchising sector, he indicated that, Canada is another
economy that is doing great with the effect of franchising businesses, with 45% of its
retail business in franchise sector, Australia has 26%, far east countries( Taiwan, Japan)
with 12-13% figure. As franchising is now becoming saturated in the developed world,
the emerging markets including Far East, South America, Eastern Europe, India
Caribbean, and Africa is now becoming fertile grounds for franchising to take root.
South Africa is currently accounting for an estimated 7% of franchised businesses in its
economy, although it lags behind most countries, the economy proves that the potential
for growth is unlimited in Africa, (Aboud, 2009).
Over the years, the developed nations have proven that franchising plays an essential
role in the economic growth and development of most countries, this therefore, needs to
be extended to the new emerging markets and new territories globally in order to sustain
growth and increased turnover.
Emerging markets therefore play a critical role in the global expansion of franchising
business, although facing some cultural problems, despite its contribution to the
economic development. For instance, in India and Islamic countries where McDonalds
faced lots of problem with the uses of meat and pork products in its menu.
37
The franchise business activities have added vibrancy to the local business scene of
most global economies and their strong identity and high business efficiency have
spurred many local entrepreneurs to adopt franchising as a strategic business option,
thereby contributing to the business and economic growth.
Aboud, (2009), indicated that
“With franchising, entrepreneurs gain accesses to a proven business
model while still enjoy the flexibility and freedom of being their own
boss and that successful franchisors and franchisees have it all worked
out”.
Aboud(2009), cited Trinidad and Tobago, and most developing economies are now
recording high impact of franchised business, with KFC, Papa john’s, Subway, Burger
King, Beni Hanna, Ruby Tuesdays, Dominos, Church’s Chicken and so on now dotting
the business landscape of Trinidad and Tobago.
Finally, Shay, (2009), concludes that “international expansion of business format
franchising is not only important for the continued growth of the franchising industry
and the particular sector, but it is an important component of economic recovery
globally”.
2.8 FRANCHISING AS A STRATEGIC RELATIONSHIP (FRANCHISEE-
FRANCHISOR RELATIONSHIP).
Strong Relationship is the key factor of any successful business who adopts franchising
as a business option. This relationship is regarded as strategic and mutual between both
parties, and the terms and conditions ensures both parties entering into a contractual
relationship with each other, and it’s classified as the key successful business growth
which is usually long term.
According to Kotler &Keller, (2006:508) “Franchising is mutually beneficial to both the
franchisor and the franchisee”, and the relationship has been a major growth and success
in most franchise business globally.
Kotler &Keller, (2006:508), explained some of the importance of mutual relationship in
any franchised business, and stress that among the benefits reaped by franchisors
38
includes the motivation and hard work of employees who are entrepreneurs rather than
“hired hands”, the franchisees familiarity with local communities and conditions, and
the enormous purchasing power of the franchisor, and also, franchisees benefits from
buying into a business with a well-known and accepted brand name. They find it easier
to borrow money from financial institutions, and receive support in areas ranging from
marketing and advertising to site selection and staffing and so on.
Although, franchisee do walk a line between being independent and loyal to the
franchisor, but the independence can allow more flexibility. In most instances,
maintaining a cordial franchisor- franchisee relationship play a major role in franchise
system (business) growth and success.
Aboud,(2009), explains the concept of “sustainable franchising”, as part of maintaining
the relationship existing between the franchisee and the franchisor.
“In order to ensure that the franchise concept is sustainable
in the long run, franchisors should design and develop the
business model with the end in mind, which is aim for the
regional and global market, not just the domestic market. He
indicated that having the end in mind will ensure that the
systems put in place can be readily upscaled as the business
expands”.
As part of the mutual relationship, franchisors provide effective support in bulk
purchasing, sales promotion, business management systems, advertising (national),
training, to franchisees, for instance in McDonald’s franchising globally.
Sherman (2003:419), also throws more light on the importance of the strategic
relationship in franchising. He said that when an entrepreneur consider franchising as a
growth strategy, it’s always important to remember franchising is about the
establishment and continuation of strategic relationships. Both parties are depending on
each other for success, knowingly and voluntarily agreeing on a long term relationship.
Franchising in this case, ensures both parties making a voluntary and bilateral decision
to create a mutually beneficial relationship, with the aim of coming and working
together for each other’s benefit. In most cases, it has been observed that most
franchising relationships end up with the desired aim and objectives of coming together.
39
A good relationship between both parties is identified as being critical for the success of
the whole system. Beshel (2001) concludes that
“since franchising establishes a business relationship for
years, the foundation must be carefully built by having clear
understanding of the whole franchising system, therefore,
there need to be a strong agreement between both parties”
(p.7).
Also, there has been extension of the relationship to various franchising regulated
bodies locally and globally like the International Franchising Associations (IFA), the
British franchising association (BFA), and various local franchising regulatory bodies.
Shay (2009:6), stressed that in helping members learn the fundamentals of franchise
laws in foreign markets, the market potential of particular countries, and the actions
needed to expand overseas and improving on the existing markets, IFA hosts and
participated in several educational events, seminars for its registered members globally.
An example of this was the recent franchising seminar held in Birmingham, in
November, 2009 organized by the British Franchising Association (BFA) where
members visit IFA stand to ask questions and make enquiries. This promotes a very
strong tie between the IFA and different franchisees and franchisors from different
sectors globally.
2.9 ASSESSING RISK IN BUSINESS FRANCHISING.
Franchising is widely seen as a business model and strategy. Cross et al,(2008),
comments “the consistent growths in the concepts over the past years have proof
substantial that it can live up to its implied promise, however, this does not mean that
every business venture labeled a franchise is automatically successful”. (p.10)
According to Murray (2006), “Franchising has the capacity to ease new entrepreneurs
into the world of business”, (p.34). He maintains that the success of any franchise
system depends on the following: the franchise must be built on solid foundations, the
quality of the business mode must be beyond reproach, the network’s support
infrastructure must be fully developed, and the franchisee must be willing and able to
follow the business model.
40
Despite its success as an international entry, marketing, business growth and expansion
strategy, franchising is not without its problems/risks, and “like all investment
decisions, there are business risks involved in franchising”. (Aboud, 2009).
The risks in franchising are usually associated with both parties, but the degree of risk
taken varies, where in most cases the risks faced by franchisors are not prominent as
compared to that of the franchisees and therefore franchising is considered as “risk
taken business option”. The franchisee is mostly seen as the risk taker, where the
franchisor only faces fewer risks in the whole relationship, this is the case with most
McDonalds franchising.
Hall et al (2008:15) and HSBC (2009:3), identifies some of these risks faced by
entrepreneurs (franchisees) in adopting franchising including, devaluation of trade
name, lack of Independence, royalty payment which must be paid even if a loss is
incurred, cancellation of the agreement if some provisions are not met, oversaturation
could occur if too many franchisees are located in one geographical region, the
franchisees may be locked into contracts requiring purchases from the franchisors or
certain vendors, For example this is the case with most McDonald’s franchisees
worldwide.
On the other hand, some of the risks that may be incurred by franchisor includes careful
examination and assessment of the potential franchisees, costs risks, proper monitoring
and control the franchisees, not delivering sufficient support, business conflicts,
selection of franchisees for wrong reasons and so on, whereby most of the risks are not
prominent as compared to that of the franchisees, HSBC (2009:3).
2.10 THE FRANCHISE AGREEMENT.
Beshel (2001:1) describes franchising as the agreement or license between two legally
independent parties which gives:
A person or group of people (franchisee) the right to market a product or service
using the trade mark or trade name of another business (franchisor).
The franchisee the right to market a product or services using the operating
methods of the franchisor.
The franchisor the obligation to provide rights and support to franchisees.
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According to Rubin, (1978:224) in Stanworth &Hoy, 2003, “a franchise agreement is a
contract between two (legal) firms, the franchisor and the franchisee”, (p.22). It is the
legal written documents that governs the relationship and specifies the terms of the
franchise purchase and the agreement also enjoys a “cooling off” period.
A good relationship between both parties is identified as been critical for the success of
the whole system and since franchising establishes a business relationship for years, the
foundation must be carefully built by having clear understanding of the whole
franchising system, Beshel (2001:7) Therefore there has to be a strong agreement
between both parties.
Beshel (2001:3), identified two types of the agreement. The single unit and the multi-
unit franchise agreement, (See 2.4).
Figure 2.5: Diagram showing franchising relationship /agreement.
Source: Beshel (2001:1)
The franchise agreement usually contains informations on the franchise systems,
including the trademarks and products, the territory, rights and the obligations of both
parties, procedures, training, assistance, advertising, terms of the franchise, payments
arrangement, and the termination and or the right to transfer the franchise. (Beshel,
2001:8).
Finally, Morrison, (1996) in Hoy &Stanworth, (2003) stated that “ maintaining a
harmonious franchisee- franchisor relationship is a major determinant of any franchise
system growth and success”(p.198), while Justis et al (1993) in Hoy &Stanworth,
(2003) argues that “it is one of the most difficult and frustrating challenges in most
franchising relationship”,(p.198).
42
2.11 THE CONCEPT OF PROPRIETARY ADVANTAGE.
Business entrepreneurs think of expanding their business scope when situation arise and
they have the opportunity to do so. Hymer (1976) in Shane (1996:76) argued that firms
expand because they possess a proprietary advantage that makes them able to
outcompete local entrepreneurs. In most cases, to franchisor, franchising can be
regarded as an example of proprietary advantage, where the business system is unique
to the particular franchisor (Calvet, (1981) in Shane (1996:76).
Proprietary advantage is an essential concept in any business using franchising model as
an expansion strategy. Most companies with proprietary advantage have the opportunity
to expand fast both locally and overseas, the advantage becomes useful in foreign
markets at little or no marginal cost over the cost of developing the advantage in the
domestic market.(Caves,(1971) in Shane (1996:76).
For instance, McDonalds Corporation uses this concept in their business franchise
networks globally with the proven format system and other operational procedures
unique to the company.
2.12 THE CONCEPT OF FRANCHISEE OPPORTUNISM
One of the important dimensions of a franchisor’s business system is the set of
mechanisms developed to control franchisee opportunism. In a market setting, when
business relationship is established between two independent parties, each entity has an
incentive to act opportunistically. (Williamson, 1985 in Shane (1996:76).
According to Shane (1996:76), under such circumstances, the parties to the transaction
need to invest in mechanisms to detect and prevent cheating. These mechanisms
becomes part of the franchisors set of capabilities. Therefore, Shane (1996), concludes
that “the mechanism for franchisee opportunism is greater in international transactions
than pure domestic ones”. (p76)
2.13 GLOBALIZATION AND FRANCHISING (DIFFUSION OF FRANCHISE
SYSTEMS)
Globalization refers “to the shift toward a more integrated and interdependent world
economy”, (Hill, 2005:6).
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With increased globalization of markets, food and culture, international franchised
opportunities have recorded lots of development and growth over the years. Hoffman
&Prebble, (1995:80), reiterated that global economic integration as a result of lowering
trade barriers in the European Community (EC), the passage of the North American
Free Trade Agreement (NAFTA), and the reduction of entry barriers in many former
communist countries like Russia, Central and Eastern Europe, have encouraged
increased international franchise opportunities. Mostly, these nations have experienced
deregulation of industries at an accelerated basis, and because of these, many developed
countries are experiencing trends that made it possible for rapid franchising success in
their region (Chan & Justis,(1992) in Hoffman &Prebble,1995:80).
With globalization of market, expanding urbanization and a shift to service dominated
economies globally, the taste and preferences of consumers in different economies are
now beginning to converge on some global norm, thereby increasing the emergence of
the global market. Hill, (2005:6) and Johnson & Scholes, (2005:69) cited the example
of McDonald’s restaurants which have been a benefactor and facilitator of this trend by
offering a standardized product worldwide.
For instance, this is not the case in some society, where McDonald’s faces lots of
problem in India and among the Muslim community globally because of the beef and
pork used in the menu. This has led to stereotypic belief in these societies among
individuals and now acts as a major cultural challenges facing McDonald’s. Although,
this has being under control.
For instance, McDonald’s has aggressively pursued the strategy of geographical
expansion through new restaurant openings. McDonald’s has spent more than $2,000
million in FY2009,and about half of this amount were used to open about 1,000 new
restaurants while rest were reinvested in existing restaurants globally. About 30% of
these new units were open in affiliated and developmental licensed markets, such as
Japan and Latin America, where the Company does not fund any capital
expenditures.Web2
The success of franchisors domestically and response to increased market globalization,
has encouraged franchisors to internationalize their operations, calling for increased
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number of non U.S franchisors and businesses globally, more popular and a fascinating
venture.
Globalization has had great impact on marketing, brand names, identities and
advertising as identified in Johnson &Scholes, 2005:69. Hence, further generate global
demand and expectations from customers and provide marketing cost advantages for
global operators. For instance, 95% of McDonald’s restaurants globally use same
advertising concept and business strategy, and this has contributed to the organization’s
success in gaining strong brand names and identities worldwide.
Furthermore, Hill, (2005) concludes “falling barriers to cross border trade have made it
easier to sell internationally, thus greater uniformity replaces diversity in the world
market through franchising”, (p7)
2.14 INTERNATIONAL/ GLOBAL FRANCHISE NETWORK EXPANSION.
Franchising has emerged in recent years as a business growth model, economic
development (employment creation), and marketing strategy e.t.c globally. (Hoffman
&Prebble, 1991 in Hoffman &Prebble, 1995:80).
International franchising is the foreign market entry mode which involves a relationship
between the entrant the (franchisor) and a host country entity, in which the former
transfers under contracts a business package (or format), which it has developed and
owns, to the latter. The host country entity can either be a domestic franchisee, a master
franchisor, a foreign franchisee and an entity that is partly owned by the franchisor
himself. (Ngowi, 2009:45)
There has been increase in franchise business globally, and it has become a popular
internationalization strategy adopted by entrepreneurs, mostly service firms. Usually,
Franchisor’s grow by expanding the size of its franchise systems, which may take two
forms namely through the establishment of additional company owned outlets or
through the establishment of franchised outlets using the advantage of the local
franchisee network, (Shane, 1996:74). On the other hand, entrepreneurs prefer to
expand their business using franchising in geographically distant areas, and research has
shown that franchisors prefer to grow by establishing geographically focused franchised
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systems, which may leads to geographic saturation, and then expanding to a new
location. (Martin, 1988 in Shane 1996:74).
Hacket(1976), and Aydin &Kacker(1990) in Shane (1996:75) and Duckett, (2008:58)
argues that entrepreneurs will always choose to move overseas because of the expansion
of their business internationally, desire to take advantage of foreign markets with great
potential, reduction of costs, spreading of risks, growth saturation in domestic market
established brand name, and so on. Walker (1989) and Walker & Etzel (1973) in Shane
(1996:75) on the other hand explained that international expansion occurs in response to
inquiries of potential franchisees.
2.15 INTERNATIONAL EXPANSION PROBLEM.
Global business environment possess much uncertainties than the domestic ones, and
these uncertainties affects franchising been international business strategy.
Morgan and Katsikeas (2007:76), identifies some barriers which normally discourage
entrepreneurs to internationalize including: insufficient pool of resource which create
strategic obstacles, firm’s cost base and margins leading to operational obstacles, lack
of fit between firm’s strategy and its environment may result in limited knowledge of
market opportunities creating information obstacles, and firm may be unable to maintain
necessary interactions with key parties because of limited resource leading to process-
based obstacles.
Another major factor that affects international business expansion is the factor of the
“country risks”, which needs to be considered by entrepreneurs before transacting an
international business. Country risk involves those political, legal, economic and social
conditions within country that cause an investment to be seriously impaired. Miller
(1992) in Shane (1996), states
“The political, governmental, currencies, cultural and macroeconomic
differences across nations make international business more uncertain than
business within countries and that currency misalignment, high rates of
inflation, and transfer pricing make it difficult to measure performance
across borders”.(p76)
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Another factor affecting franchising as an expansion strategy is the monitoring of
franchisees which pose serious difficulties in international business than domestic. It is
expected that there would be a higher risk of franchisee opportunism in international
business than in domestic business. Consequently, firms which have capabilities that
make them better than other franchisors to control franchisee opportunism are more
likely to develop international expansion strategies. (Shane, 1996:76)
2.16 A MODEL OF FRANCHISING.
The model takes the form of 15 general propositions that span three levels: the societal
(macro), organizational, and the individual level. Distinguishing the three discrete levels
does not mean there are not close interconnections and overlaps between the levels, but
assist in clarity of exposition. For instance, at the societal level, general cultural
orientations related to economic activity are important in explaining franchising, but
such orientations are always reflected in other levels. (Stanworth& Curran, 1999, in
Hoy & Stanworth, 2003:24)
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Figure 2.6: Factors influencing the development of franchising: A Model
Franchising at the societal level:
Cultural
Economic
Political
Franchising at the organizational level:
Rapid market penetration
Divergent economies of scale
Format Permanence
Relationship management
Franchise failure rates
Franchising at the individual level:
Route into self-employment
Unemployment push
Prior self-employment
Complexity of franchisee motivational
System innovation
Contemporary views of autonomy
Source: Curran &Stanworth, 1999 in Hoy & Stanworth, 2003:39.
At the Societal level, cultural, economic and political contexts may be favorable or
unfavorable to franchising, and the main influences on franchising may shift from one
to the other over time. Broadly in all three, there have been changes favourable to the
franchised business form in many societies especially in the late twentieth century. This
level is the most neglected aspect of franchising. (Stanworth & Curran, 1999 in Hoy &
Stanworth, 2003:24).
For instance, wherever economic activity involves geographically dispersed outlets (like
McDonald’s) servicing local economy requires careful and understanding customer
needs. Because cultural orientations affects economic activities.
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Organizationally, the franchise business form may be seen in three distinct ways;
marketing strategy, special kind of inter organizational relationship and as distinct
organization form. Importantly, it’s good to note that franchising allows rapid and
effective market penetration using franchisee capital, experience and knowledge,
(Stanworth & Curran, 1999 in Hoy & Stanworth, 2003:28).
At the individual level, the individual motivation in franchising is the major concern.
The individual motivation concerns franchisees that own and run the satellite enterprise
associated with the franchisor. It’s argued that entry into franchising can overcome
several deficiencies in the business environment. Franchisee does not have to develop
initial business idea to operate, need no previous experience because franchisor offers
training, capital shortages are often easier to tackle as franchisor usually offer support
through individual loans, banks e.t.c. (Stanworth &Curran, 1999 in Hoy & Stanworth,
2003:32).
2.17 FRANCHISING THEORIES.
Several theories have been propounded to explain franchising as a growth and
expansion strategy, including the resource scarcity (capital needed) and agency
transactions theory. These theories explain why franchised proportion differs across
franchisor networks. Others include E-factor, Life cycle, and Risk spreading theories.
2.17.1 THE RESOURCE SCARCITY THEORY.
This perspective postulates that “there is an inverse U-shaped relationship between
franchise proportion and franchise organization age such that franchise proportion first
increases during a franchisor’s initial years and later decreases”, (Castrogiovanni, et al,
2004:1).
According to Castrogiovanni, et al,(2004:11),& Oxenfeldt &Kelly (1968) in Oxenfeldt
&Kelly(1994), “the resource scarcity argument suggests that franchising is a means of
acquiring critical scarce resources of capital, local knowledge and managerial
experience needed for firms rapid growth and expansion”.(p.1)
Oxenfeldt &Kelly (1968) gives explanation why the proportion of outlets franchised
differs among franchisors. They describe franchising as a means to access resources,
indicating that the firm’s propensity to franchise varies over time.
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It is argued that the resource scarcity reasons to franchise are most relevant for young
franchisors seeking to expand, and rapid expansion is necessary so that young
franchisors can obtain sufficient scale economies to overcome the cost advantages of
established competitors. But expansion opportunities often diminish over time as
franchisors markets become increasingly saturated.
Oxenfeldt &Kelly (1968) therefore argued that franchisors become less reliant on
franchising as maturity approach. They would no longer use franchising as expansion
strategy due to the sufficiency in internal resources meeting the expansion needs and
even buy back the sold outlets, operate them, and retain more of the outlet profits.
Therefore, many franchisors eventually would take back full control over their outlets to
become wholly company-owned chains. It is believed that the resource scarcity theory
is based on logic from product life cycle where franchising interests varies over
organization’s life cycle, (Oxenfeldt &Kelly (1968) in Oxenfeldt &Kelly (1994:4).
2.17.2 THE AGENCY THEORY
This theory postulates that “there is a positive relationship between franchised
proportion and franchise organization age, such that franchised proportion tends to
increase with age” (Castrogiovanni, et al, 2004:2).
According to Shane, (1998) in Castrogiovanni, et al, (2004), “The theory claims that
franchising improves the alignment of goals between the network and outlet levels, and
it eases three common agency problems of moral hazard, adverse selection, and
holdup”,(p.1).
Lafontaine& kaufman, 1994 in Castrogiovanni, et al, (2004:1), and Martin, (1988)
maintains that “agency factors favour an increased use of franchising as a chain expands
with maturity in which case factors like geographic dispersion and the need rely on the
local market knowledge of outlet management which increase the potential for moral
hazards, adverse selection and holdup problems and thus the costs of monitoring
company-owned outlets”.
Therefore, according to agency theory, “franchising becomes increasingly preferable to
company ownership as monitoring costs are reduced through superior alignment of
firm-level and outlet level incentives”. (Castrogiovanni, et al, 2004:2).
In summary, this chapter has been able to make clarification to franchising as a
business concept, it explain different franchising types as well as the brief history. It
50
looks at different academic literatures relating to the enquiries of this research, and
various models and theories were used to justify the understanding from the literatures
reviews. At the end, the researcher comes up with principal research questions which
were form in order to achieve the aim and objectives and from the understanding of the
literature review.
2.18 PRINCIPAL RESEARCH QUESTION
The following questions were answered by this research:
What is the importance of franchising (business format) on business
/organization’s growth and expansion?
What are the benefits of the franchisee- franchisor relationship to the success of
business in terms of growth and expansion?
Does the risks incurred by the franchisee and the franchisor have impacts on the
organization’s growth and development?
Does an economic condition (recession) affect franchising as a business growth
and expansion strategy?
What are the contributions of McDonald’s as a franchised business to the socio-
economic growth of the economy?
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CHAPTER THREERESEARCH METHODOLOGY
3.0 INTRODUCTION.
The chapter begins by briefly examining the theoretical underlying research activity,
(paradigm), the research process, design and the strategy. It explains the justifications of
different research methods used in this research. The chapter later focuses on the process
of primary and secondary data collection and analysis used for the research. The
limitations of the research were also acknowledged at the end of the chapter.
3.1 RESEARCH PHILOSOPHY (PARADIGM).
The approach to research is in most cases influenced and involves some kind of
philosophical choices about what is important and vice-versa. Easterby-Smith, et al
(2002:3) and Knox, (2004:121) argue that it is unwise to conduct a research without an
awareness and discussion of the philosophical issues that underlie such research.
According to Maylor & Blackmon (2005:155) research philosophy describes theory in a
particular field and explanations of the assumptions that underlie such approach.
Research approaches usually follow an epistemological assumption and along this
continuum are a number of assumptions. Collis &Hussey, (2003) indicated that
“Epistemology is concerned with the study of knowledge
and what is being accepted as valid knowledge. It involves
an examination of the relationship between the researcher
and that which is being studied” (p. 49).
Collis & Hussey, (2003:51) identified positivist and phenomenologist research
philosophy. Also, Maylor and Blackmon (2005:157) discuss positivism and end with
subjectivism. Positivism, realism, critical realism, interpretivism, constructionism and
subjectivism are some of the other epistemological approach a researcher may adopt.
Healy and Perry, (2000), confirm that Positivism has gained much attention in
management research but many scholars view it as “inappropriate when approaching a
social science phenomenon”. Positivistic research takes on the assumption that reality
can be measured and that research can be objective. Easterby-Smith, Thorpe et al.
(2002:28) add that the key idea of positivism is that the world exists externally, and that
52
its properties should be measured through objective methods. This infers that only
knowledge, which is observable, is in fact ‘valid’.
Maylor and Blackmon (2005), indicated that “Interpretivism takes a subjective
ontology and appropriate for studying business and management phenomena since
human behaviour at the level of the individual or social system, differs significantly
from the behaviour of natural objects”,(p.155). This research therefore follows an
interpretivism approach involving qualitative (inductive) research.
3.2 THE BUSINESS /MARKETING RESEARCH PROCESS.
Aaker et al (2004:43-5), argued that any research activity or study involves seven steps
including the agreements on the research process, establish research objectives, estimate
the value of information, design the research, collect the data, prepare and analyze the
data, report the research results and provide strategic recommendations. It is the route
map of any type of research.
3.3 RESEARCH APPROACH.
When a research is designed, the first thing that needed to be considered is what
approach will be suitable to conduct the research. Aaker et al (2004:75) argued that
there are three ways in which a research can be conducted namely, exploratory,
descriptive and causal research.
3.3.1 EXPLORATORY RESEARCH mainly centre on those where researcher do not
understand a problem clearly,(Cooper and Schindler, 2006:198 &Robson, 2002:59).
Aaker et al (2004:75) also argued that in the situation where exploratory research is
conducted, it is often the case where there is little knowledge about the research
problem. Thus, Chisnall (2001:35) argued that exploratory research aims at finding the
real nature of research problems and laying relevant hypotheses for later tests. This
research adopts exploratory research in its approach.
3.3.2 DESCRIPTIVE RESEARCH as argued by Cooper and Schindler (2006:194) is
used to find out answers to the questions who, what, when, where, or how much. It
investigates more specific problems than exploratory research. It enables the elements in
the exploratory research to be better described and related.
53
3.3.3 CAUSAL / EXPLANATORY RESEARCH according to Aaker et al (2004:77),it
is used in situations where researchers aim to test if one variable causes or determines
the other. Cooper and Schindler (2006:194) also believed that casual research is used to
show some causal relationships between variables.
3.4 RESEARCH STRATEGY.
This refers to a general orientation and process to conduct research. Once a research
approach is decided, researchers need to focus on the research methods. Hague, (1992),
identifies two major strategies of conducting business research, namely, the quantitative
and the qualitative strategies, (p.120).
3.4.1 QUANTITATIVE RESEARCH: refers as a research strategy that focuses on
quantification in the data collection and data analysis, (Bryman and Bell, 2003). It is the
systematic scientific investigation of quantitative properties and phenomena and their
relationships. The objective of quantitative research is to develop and employ
mathematical models, theories and/or hypotheses related to natural phenomena. The
process of measurement is central to quantitative research because it provides the
fundamental connection between empirical observation and mathematical expression of
quantitative relationships. Saunders et al,(2003) mentions “that it involves using
deductive theory in which one develop a theory and hypotheses and design a research
strategy to test the hypothesis”. (p.85).
3.4.2 QUALITATIVE RESEARCH: is a popular method of inquiry used in most
academic disciplines, traditionally in the social sciences, business/ market research and
further contexts,( Denzin et al, 2005).
It aims to gather an in-depth understanding of human behaviour and the reasons that
govern such behaviour. The qualitative method investigates the “why” and “how” of
decision making, not just “what”, “where”, “when”. Hence, smaller but focused
samples are more often needed, rather than large random samples. Aaker et al (2004:75)
argued that “qualitative research methods are very flexible”. It is used mainly in
exploratory research and the main objective is to gain preliminary insights into research
problems,(Hair et al, 2006:173). Qualitative research emphasizes on the ways an
individual’s interpret the social world, it rejects the practices and norms of positivism. It
54
emphasizes on words rather than quantification in the data collection and analysis.
(Bryman & Bell, 2003).
The research is usually associated with inductive theory, where the theory is the
outcome of the research, and the process of induction involves drawing generalizable
inferences out of observations. “The inductive approach, involves collection of data and
develop theory as a result of the data analysis”, Saunders et al, (2003:85).
3.5 QUALITATIVE VERSUS QUANTITATIVE.
Wright and Crimp (2000:374-5) informs that qualitative research uses “description by
words and pictures”, while quantitative research uses “measurement and number”.
Hague and Jackson (1999:17-8) argued that quantitative research emphasizes accuracy
whereas qualitative research emphasizes “understanding” rather than simple
measurement. Hague (1992:123) also argued that a qualitative research enables
researchers to better understand the subject matter more so than quantitative researches.
In conclusion, quantitative research emphasizes the accuracy and quantity dimensions
while on the other hand, qualitative research emphasizes the nature or quality aspects.
This research adopts qualitative (inductive) approach due to the nature of the enquiries
of this research.
Figure 3.1: Diagram showing the Saunders’s et al Research Onion Ring
Source: Saunders et al, (2007)
55
3.6 THE RESEARCH DESIGN PROCESS.
The research design is the key point to make sure that research aims is fulfilled.
According to Aaker et al (2004:73), “a research design is the detailed blueprint used to
guide a research study toward its objectives”. A research design contains two sub-steps,
the research approach and the research tactics. Research approach (See 3.3) guides the
way the research information is obtained including and the tactical research decisions
will then need to be made. These usually includes identifying the population, designing
the sample size and methods to use, determining how the primary data will be collected,
including survey, observation, questionnaires, interviewing (structured or semi-
structured interviews), analysis methods and e.t.c. Robson (2002:80-1) argued that five
key aspects should be considered when designing a research including the purpose,
theory, research question, method, and sampling strategy.
Figure 3.2: Diagram showing Stages of Research Process
Problem discovery Discovery and Definitions
And so on
Research Design Conclusion and Reports
Sampling Methods Data processing
And analysis
Data gathering
Source: Zikmund, 2002
3.7 SAMPLING METHODS.
It refers to “obtaining a manageable part of an object/ population that supposedly
possesses the same qualities as the whole”. (Swetnam, 1997:40)
Aaker et al (2004:373) believed that sampling is useful when the population size is big,
cost and time are limited. They argued that the time spent on research could be limited
if sampling is used properly, hence improve the quality of the responses.
Churchill and Iacobucci (2002:453) identified two types of sampling:
56
Probability, and
Non-probability sampling.
A probability sampling suggests that each element in the population has equal chance of
selection, while on the other hand, in non-probability sampling, there is no guarantee of
selection as any element can be selected to be included in the sample. It mainly depends
on the personal judgment of the researcher according to the aim, the objectives and the
justification of the research.
Aaker et al (2004) argued “that non-probability sampling can be best used in
exploratory research” (p.387-90). He identifies four types of non- random sampling as:
Judgemental, Snowball, Convenience, and Quota sampling.
Snowball sampling was used to determine the sample size for this research. Collis
&Hussey, (2003) argued that “Most phenomenological (social-business) research adopt
this approach because it is essential to select respondents with previous knowledge and
experience of the phenomena and process been researched”,(p158).
Due to the nature of this research, it becomes important to select respondents with
specific and previous knowledge of the research topic.
Therefore, from the franchisee’s view, three (3) respondents were interview in the
restaurant, including the franchisee, the restaurant business manager, and the assistant
business manager, (Names supplied on request). From the franchisor’s perspective,
two (2) field consultants (Managers) were selected from the McDonalds U.K
headquarters at East finchley, London, (Names supplied on request) to elicit
informations for the research.
3.8 METHOD OF DATA COLLECTION.
A research method refers to a technique for collecting data including the primary and
secondary sources. The primary sources include questionnaires, interview and
observation methods to gather informations (current) for a research, while the secondary
sources are those informations sourced from the documentary reviews usually from
textbooks, journals, articles, newspapers, gazette and so on relevant to this study.
(Bryman & Bell, 2003).
3.8.1 INTERVIEW METHOD.
57
Interviews also allows for social argument to construct “nuance, complexity and
roundness in data” (Mason 2002:65).
Maylor and Blackmon (2005:221) describe interviews as a good method of collecting
data, as it enhances the level of personal involvement with the phenomena being studied
especially in a qualitative research. On the other hand, Zikmund 2002, indicated that
“The speed of data collection using interview is moderately fast,
geographical flexibility is limited, respondent cooperation is excellent,
versatility of questioning is quite versatile, anonymity of respondent is
low, degree of interviewer influence to answer is high and also the
possibility of respondent misunderstand is lowest”.
The research adopts interview method, because of the small number of samples
(respondents), nature of the research and the position of the respondents.
Semi- structured questions were used for the interviews with the help of interview
guide for the franchisee and the franchisor respectively which help researcher to focus
on the specific questions. “It is beneficial to have interview guide during qualitative
interview”, (Lindlof & Taylor, 2002:195).
Questions were designed according to the aim, objectives and the principal research
questions and the interviewing technique used was face-to-face and documented using a
tape recorder and hand-written, which was later transcribed and analyzed qualitatively.
Advantages includes
Interviews are considered more respectful particularly when attempting to elicit
informations from senior officials.
It is describe as the best way to gather informations during research because the
informations gathered are rich, and detailed.
The interview method has assisted the researcher in obtaining current and first
hand informations useful for this study.
Disadvantages includes
It is not easy to analyze the informations
It took time to get the managers attention for the conducted interviews, e.t.c
3.8.2 OBSERVATION METHOD.
58
Participant Observation was another tool adopted by the researcher during this study as
primary data collection method. This becomes an important tool as the researcher is an
employee of McDonalds Corporation, where the study is taken place.
Zikmund, (2002), defines observation as a systematic recording of patterns of
occurrence without communicating with the phenomena involved.
This actually assisted the author in gathering important information useful for the
research, and common themes were observed and documented on daily basis while
working. The method allows the author not just to compare but it assist in the
interpretation and discussion of the research findings, it also allows the researcher to
identify information that were not previously addressed by other researcher which
assists in this research. (Maylor &Blackmon, 2005:351).
3.8.3 QUESTIONNAIRE METHOD.
McDaniel and Gates (2005) stated that “questionnaires are set of questions designed to
generate data/ informations necessary to accomplish the aims and objectives of research
project”, (p.318)
Questionnaires are valuable method of collecting a wide range of informations from a
large number of respondents. Good questionnaire construction is critical to the success
of any survey and inappropriate questions, incorrect ordering of questions, incorrect
scaling, or bad questionnaire renders most surveys valueless, it can be open or close
ended, (Bell, 2005)
On the other hand, questionnaires according to Maylor and Blackmon (2005:186) only
capture questions that have been asked, and quite often some questions are omitted
which can result in a very shallow description of the phenomena under investigation.
This research therefore, did not adopt this method due to the nature of the research and
small number of samples (respondents) involved. It adopts qualitative approach.
3.8.4 DOCUMENTARY REVIEW.
Documentary review is one of the methods of collecting secondary data in any research.
It involves consulting existing literatures for informations on the research study. Mostly,
it involves theoretical evidence and used to internalize, enrich, corroborate and verify
data collected from the field.
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Different literatures were consulted during this research including organizations reports,
journals, magazines, newspapers, on-line documents (internet) and textbooks. The
libraries used include London School of Commerce, London School of Economics,
British Library, Walthamstow local Library and so on. Different E-libraries were useful
including e-brary (Westminster Library), ebscco e-search (Datamonitor) and so on.
3.9 METHOD OF DATA ANALYSIS.
The next step after data/informations collection is the analysis. Research informations
can be analyzed in two ways namely: Quantitative and Qualitative analysis.
3.9.1 QUANTITATIVE ANALYSIS.
This involves interpreting first hand data from the fieldwork, (See3.8). Aaker et al
(2004:433), reiterated that, quantitative analysis involves edition, coding, interpretation
and tabulation of informations collected during fieldwork. It involves broken of
tabulated data into appropriate summary statistics which aid in the findings of the
research.
This research does not involve quantitative analysis in this regard as the research is
inductive (qualitative) in nature, but on the other hand, the research makes use of pie-
charts and bar- charts, to represent some secondary informations pictorially describe in
the chapter two of this research.
3.9.2 QUALITATIVE ANALYSIS.
Qualitative analysis involves description of data in words and pictures. It’s descriptive
in nature. It involves interpretation of informations gathered during the field work in
words and pictures.
As a social business research, it involves relationship that exists between human being
and not natural phenomena. The research informations were analyzed qualitatively
using description in words and pictures where necessary.
Crouch and Housden (2003) argued that “the results of qualitative research should never
be expressed in terms of percentages”, as the samples are not selected using statistical
procedures” (p.220)
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3.10 RESEARCH VALIDITY, RELIABILITY AND GENERALISABILITY.
These three concepts address issues about the quality of the data and appropriateness of
the methods used in any research. They are important in all social-science and most
research that involves human phenomena because of the dynamism (changes) in human
nature and different philosophical and methodological approaches to the study of human
activity. (Cano, 2009).
Swetnam, (1997:27-28) indicated that “the three concepts help inductive researchers to
provide blunt answers to the questions is it any good; is it any use?”
3.10.1 RELIABILITY is the degree to which a research produces similar outcomes
when it is repeated and when consistently measures whatever it measures.
3.10.2 VALIDITY is the degree to which a research measures what it is supposed to be
measuring. It is usually to confirm how plausible the collected data is.
3.10.3 GENERALISABILITY is the degree of the application and usefulness of the
research to other researchers and institutions.
Three concepts were adhered to throughout this research study and all data were subject
to rigorous examination.
3.11 RESEARCH ETHICS.
It is defined as the moral norms that need to be adhered to in a research. It is the rules
distinguishing rights from the wrongs.
The interviews were conducted in a pleasant atmosphere, and respondents were treated
with respect. Permission was sought from the restaurant (the strand) and McDonalds
U.K, before the researcher uses the company informations. Informations collected were
used strictly for this research purpose.
Reliability, Validity and confidentiality were maintained throughout the whole research
process, strict research ethics were applied throughout this study.
3.12 LIMITATIONS OF THE STUDY.
According to Paley, (2004:23), Economic and time constraints act as barriers to most
research studies. These acts as limitations as to how much area can be covered in
research.
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Some of the identified limiting factors for this research were shortage of time, harsh
weather conditions, insufficient funds and so on. Even though the research work was
planned, the process was cumbersome and time had actually posed a slight problem.
The allocated time was too short for the research. Availability of funds was another
problem encountered during this research in travelling around gathering informations.
There were constraints getting the respondents to fix appointment due to their tight
schedule finalizing end of the year reports and preparation for the New Year. There
were also constraints in getting hold of required informations because of confidentiality,
despite presentation of valid university permission letter. Lastly, harsh weather
condition affects the researcher in moving around collecting primary data. But despite
these limitations encountered, the research was enjoyable and rich with useful
informations.
3.13 SUMMARY
The Chapter summarized and evaluated the ways with which the researcher carried out,
conducted and planned the research. Highlighting potential issues of reliability, validity,
generalisability and ethical issues of the informations gathered. Bearing in mind chapter
four that presents the data analyses with reference to the reviews in chapter two in order
to make conclusions in chapter five.
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CHAPTER FOUR
FINDINGS AND DISCUSSIONS
4.0: INTRODUCTION.
This chapter reports on the interviews conducted in respect to the aims, objectives and
the principal research questions of this research.
In most qualitative research, researchers has different options to make sense of the
informations collected, and since this research was described as inductive (chapter
three), the findings were describe in words qualitatively. Henning (2004), acknowledges
that “qualitative research analysis requires craftsmanship and the ability to capture an
understanding of the data collected in writing”,(101).
Appendix 4 shows the blank interview schedule used during the interview. Both sets of
questions (franchisee and franchisors) were similar in structure but each questions
provided its specific answers. The findings were grouped together rather than reported
separately and comparisons were made between the two respondents groups in the
discussion section of this chapter.
4.1: RESPONDENTS DEMOGRAPHIC INFORMATION -PART A
The demographic informations of the respondents become important in most qualitative
research. But, due to the status of the respondents interviewed (See 3.7), the respondents
insist on the privacy of their profiles to be kept anonymous. The anonymity of the
informations therefore, complies with the research ethics and confidentiality, (See 3.11).
The researcher promised to keep both personal and organization’s informations
confidential throughout the research.
4.2: INTERVIEW FINDINGS (Responses from the franchisee’s point of view)-
PART B.
4.2.1: POSITION AND ROLES OF THE RESPONDENTS.
This question was an attempt to measure the level of involvement of respondents within
the restaurant and to determine specific roles play by each respondent. The answers
were summarized below:
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The Franchisee: The licensee of the restaurant, involved in strategy formulation
and implementation. Oversees the restaurants general development as well as
liaison with the franchisor in all aspects of the restaurants development.
The Restaurants Business Manager: Responsible for internal control and
supervision of all management functions in the restaurants.
The Assistant Manager: Deputizes the business manager on its absence in all
designated functions.
4.2.2: NUMBER OF YEARS WORKING FOR THE COMPANY.
From the interviews conducted, the researcher found that the respondents possess vast
knowledge of the research enquiry. Their experience ranges between 15- 30 years, and
span across the whole strata of the decision making process in McDonald’s which assist
the researcher towards the enquiry of the research as stated in chapter three.
4.2.3: DURATION OF THE RESTAURANTS INVOLVEMENT IN FRANCHISE
AGREEMENT WITH MCDONALD’S.
The interview responses show that the restaurant enters into the present agreement with
McDonalds in July 2007, (2 and half years ago), which will run for 20 years.
4.2.4 IMPACTS OF FRANCHISING (BUSINESS FORMAT) ON THE
RESTAURANTS GROWTH AND EXPANSION.
During the interviews, it became apparent that the respondents had a clear view of the
impacts of franchising on the restaurants growth and development. Though, briefly
stated, all the respondents indicated that franchising had proved ‘a model right’ for the
business. They confirmed that the best strategy to business growth and development is
franchising. From the responses gathered, it was indicated that franchising has
contributed positively to the business growth, development and expansion since the
store became franchised in 2007. The respondents indicated that in less than three years
as a franchised restaurant, the sales (turnover) have increased up to 40%, justifying the
positive impact of the model.
The researcher observed that franchising has actually transformed the restaurant from
what it used to be. For instance, in terms of the outlet’s refurbishment, equipment,
training and development and so on. The franchisee stated that “the restaurant now
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have “regular and guaranteed cash flow”, and in all concludes franchising has actually
contributed positively to the growth and development of the restaurant”.
4.2.5 ADVANTAGES OF BEING PART OF “MCDONALD’S FRANCHISE”
NETWORK TO THE RESTAURANT GROWTH.
The researcher quoted the franchisee, “Mc Donald’s franchising system is worth buying
and bidding for”. The researcher observed that the restaurant has witnessed lots of
changes since became franchised in 2007. Some of the advantages gathered from the
respondents as been part of McDonald’s franchise network includes:
Opportunity of being part of a big brand name
Spreading of business risks,
Potentially greater rewards financially,
Rapid business growth,
greater chance of success,
Operation under a brand name,
Opportunity of national advertisement,
Benefit of bulk purchasing,
Easier financing and less capital
Opportunity of buying into a proven and established business
Also, the business manager indicated that the opportunity to set up own system with the
franchisor’s permission has been a great advantage for the restaurant. The franchisee
was able to set up a maintenance department and a specialist recruiter for the restaurants
chain. It was gathered during the interview also that the training and development of the
staffs including the management staffs are now more accessible.
Most importantly, the researcher also find that the advantage of been a franchised outlet
contributed to the restaurant’s award as the ‘the U.K And Ireland Restaurant Of The
Year 2009’ and The Year 2009 Training (Nabit) Store, by the Mc Donald’s U.K and
Ireland in November 2009.
4.2.6 CONTRIBUTION OF THE FRANCHISEE- FRANCHISOR RELATIONSHIP
TO THE RESTAURANTS GROWTH AND DEVELOPMENT.
The researcher gathered that the importance of the relationship between the franchisee
and the franchisor cannot be overestimated in any franchise business. From the
interviews conducted, it was gathered that the growth and success recorded so far in the
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restaurant was mainly as a result of a good working (mutual) relationship with the
franchisor. One respondent indicated that “the key factor of any successful business
growth is the level of the relationship between the parties”.
It was also observed during the study that the restaurant received a satisfactory support
from the franchisor at all time, which was identified as important and contributes to the
growth and development of the business. Some of the areas identified by the respondent
in which the restaurant has benefited from the impact of the relationship include:
Staff training and development (initial and ongoing)
New menu launch training, (Nabit training)
Twenty year(20) long term agreement
Advantage of national marketing
Increased value of the business
Right to trade using Mc Donald’s system
Loan support (Bank and franchisor’s)
Professional advice
The franchisee asserted that
“An important area that the restaurant has benefitted most is the
development of innovative sales and marketing strategies by the
franchisor which has helped in attracting new customers and retains
the existing ones”.
It was observed that the restaurant has benefitted lots being part of a well established
name in the fast food industry. The researcher also confirms that the relationship with
the franchisor has been a positive and satisfactory one which has contributed much to
the restaurants growth and development.
4.2.7 RISKS ASSOCIATED IN ADOPTING FRANCHISING AS A BUSINESS
STRATEGY BY THE RESTAURANT.
According to the information gathered from two respondents, it was indicated that the
risk in most business adopting franchising as a business strategy is lower, compared to
individual business start-up. The respondents maintained that like all other business
investment decisions, there are risks involved in franchising. The researcher observed
that the risk for the restaurant is actually lower, because there is the back up and support
needed from the franchisor at all times. Therefore, it was gathered from these
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respondents that the risks does not have major impact on the restaurant, because the
restaurant turnover has been great.
But on the other hand, one respondent indicated “that there are lots of risks associated
when a business adopts franchising as a strategy, and it usually has an impact on the
business. Although it is lower, but the effect can be dangerous”.
Moreover, from the observation and documentary evidence gathered during the
research, some of the risks identified include, contractual restrictions, lack of
independence, restriction on sale of business, the royalty payment, rent, marketing fee
and so on must be paid even if the restaurant is running at a loss because it was agreed
already, the power of the franchisor to withdraw the agreement if the situation calls for
it. Other risks identified include, franchisor reputation, devaluation of trade name,
franchisor competence, and so on.
Further research indicates that, the risks identified do not really have much effect on the
restaurant business growth, because of the existing relationship between the franchisee
and the franchisor.
4.2.8 IMPACT OF THE RECESSION ON THE RESTAURANTS GROWTH AND
DEVELOPMENT.
From the observation and interview conducted, it was gathered that the business has not
adversely been affected by the recession, due to the nature of the business. The
researcher noted that despite the recession affecting most businesses globally, the
restaurant’s sales (turnover) have been increasing at a record high. One respondent
indicated that “Although there is a recession globally, the restaurant is not affected like
that, and this is the case for about 85% of McDonald’s restaurants in the United
Kingdom, because it’s a business that is needed by most individuals on the high street”.
The researcher also found from the interviews conducted that the restaurant recorded
turnover over the past 9 months has been positive, (Appendix 2). The franchisee
indicated “that this significant turnover has actually made it easy for the business to
secure loan from banks which has enable the expansion of three (3) more restaurants in
the last months”.
It was also observed that the customers were drawn to the value meals in the recession,
which has contributed to the increase in customers visits, hence contributed to the huge
sales recorded despite the recession. It was therefore found by the researcher that the
impacts of recession are not significant on the restaurant.
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4.2.9 BENEFITS/CONTRIBUTIONS OF MCDONALD’S TO THE SOCIO-
ECONOMIC GROWTH OF UNITED KINGDOM.
This question was asked to ascertain the contributions of McDonald’s as a franchised
business organization to the socio- economic development of the country. It was
gathered from the interviews, that due to the nature of the business, as a franchised
restaurant, operating under a brand name, it’s difficult to identify any restaurant with its
own the contributions, the contributions are in form of “corperative contributions”,
which is usually anchored by the head office (franchisor). But there are some restaurants
that act ethically by introducing their own individual contribution(s) to the local
community. The franchisee indicated that “in the case of this restaurant, we have
introduced the street litter pickers around the Westminster council in support of the
greener and clean environment, promoting by the government. Although, it’s smaller
compare to others, but we are trying to improve more on this”.
Other respondents identified some of the contributions of the restaurants, but in
collective effort with the franchisor including:
Employment generation
Agricultural development
Education development
Financial contribution through tax paid, rent paid banking and other financial
transactions involving the restaurant so on.
Other “corperative contributions” identified by the researcher during the research are
RMHC (Ronald McDonald’s House of Charity), contributions to families with children
in the hospital across the country, sponsoring of the Yearly F.A community football
competition. It therefore becomes important to say that McDonald’s is a major
contributor to the socio economic growth and development of the country.
4.2.10 CHALLENGES FACING THE RESTAURANT
Some of the challenges identified by the franchisee during the interview include:
Health Issues: a renewed threat of the spread of bird flu across various parts of
the country every time affects the sales slowdown. He indicated the fear of
obesity in children, as some people in the society has tagged the restaurants.
Effect of recession: Researcher found that the consumer spending has adversely
affected by recession in the 12 months.
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Strict competition: It was observed during the research that the restaurant is
facing lot of competition, from other restaurants around. Been a busy location,
this is inevitable.
The other two respondents both identified cultural challenges as a major factor that has
been facing the restaurant and other McDonald’s restaurants. For instance There are
some particular segment of the society that can’t eat meat, and some are particular about
‘halal meat’, to these people, McDonald’s menu is forbidden to them, because of the
way the foods are been produced.
4.2.11 RECOMMENDATIONS OF FRANCHISING.
This question was asked in order to ascertain the extent to which the respondents
perceive franchising as an important business strategy. From the interviews conducted,
all the respondents indicated they will definitely recommends franchising to any
individual interested in food business, and more importantly they all concludes,
McDonalds franchising is worth buying. The researcher therefore found out that
Franchising is a Profitable Business Venture.
4.3: INTERVIEW FINDINGS (Responses from franchisor’s point of view).
This section reports the findings of the interviews with managers at the Mc Donald’s
U.K headoffice, London to elicit informations from the franchisors point of view. The
responses are reported in terms of the interview questions posed,(Appendix 5). The
answers (findings) were grouped together rather than reported separately and the
discussions follow immediately.
4.3.1: POSITION AND ROLES OF THE RESPONDENTS IN THE COMPANY.
Given the sensitivities of their job, the respondents were adamant that they did not want
to be quoted nor identified, despite assurances given about the confidentiality of
informations.The researcher was not allowed to publish these informations.
4.3.2 NUMBER OF YEARS OF EMPLOYMENT WITH MCDONALDS U.K.
From the interviews conducted, the researcher gathered that the respondents have vast
knowledge of the franchise industry, hence the aims and objectives of the research will
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be met. The respondents indicated they have been with the organization for more than
15 years.
4.3.3 YEAR OF MC DONALD’S ESTABLISHMENT AND FRANCHISING IN
THE UNITED KINGDOM.
From the research conducted and the documentary evidence, the researcher was able to
find that the organization started its operation in the United Kingdom in 1974, at the
opening of a restaurant in Woolwich (South- East London) and started franchising in
1986.
4.3.4 ADVANTAGES OF FRANCHISING ON THE ORGANIZATION’S GROWTH
AND DEVELOPMENT.
The interview responses show that McDonald’s has recorded lots positive and
satisfactory influence which has contributed to its growth and development since the
adoption of franchising as business strategy. The organization has gained lots of
benefits in terms of the business turnover, which has been profitable over the years
according to the research.
The researcher was able to deduce from the research and documentary reviews how
franchising has brought about reduced need for involvement in daily operations of
franchised outlets by the corporate headoffice which has contributed to the growth and
development of the organization.
Further probing also revealed some of the identified advantages of adopting franchising
by this organization, which has contributed to the growth and expansion today. These
include:
Greater chance of success
Faster growth
Outlets expansion using franchisees financial and manpower resources
Far fewer staff needed than for a company –owned network
Rapid Geographical expansion
Dynamic Innovation
Opportunity of global operations
Local community involvement
Increase Market share and build brand equity
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Obtain operating efficiencies and economic of scale.
On the other hand, some of the disadvantages observed include oversaturation in
market, devaluation of trade name and high costs of maintaining the franchise networks.
One respondent indicated that “at McDonalds, we recognize the benefits of franchising
in our business operation, including the introduction of entrepreneurs with full
determination and ideas into our organization”. Franchising has contributed
considerably to the organization’s faster growth and expansion through the creation of a
truly global brand loyalty.
The research also reveals that financially, franchising has contributed to the
organization’s revenue generation which comes mainly from the monthly rent
calculated on a sliding scale based on the restaurants sales. The contributions basically
come from rent, royalty, national advertisement and so on.
The researcher therefore concludes that franchising has helped the organization achieve
its goal, and has contributed greatly to the growth and development of McDonalds’s.
4.3.5 IMPORTANCE OF FRANCHISEE- FRANCHISOR RELATIONSHIP TO
MCDONALD’S DEVELOPMENT.
From the findings, it was indicated that McDonald’s views the franchisee- franchisor
relationship as paramount to the success of its business.
From the interviews conducted, all the respondents indicated that the relationship has
always been positive. It was gathered that, both parties benefits from the mutual
relationship, where they depend on the other for success and profitability.
It was observed during the research that, McDonald’s U.K encourages and maintains a
good relationship with its franchisees from the beginning of the agreement through the
20 years term.
One respondent says “we encourage our franchisees to use their entrepreneurial talent
and creativity to help shape our marketing and business strategy”. Because of this
relationship, the respondents indicated that, most McDonald’s franchisees now identify
McDonalds as an ideal business opportunity for their entrepreneurial types.
Some of the ways in which McDonald’s encouraged good working relationship with the
franchisees identified by respondents includes:
Designation of business consultant to each franchisee who offer support and
professional advice when needed.
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There are also teams of professionals who answer questions raised by
franchisees on a daily basis.
Regular communications meetings and sessions held for feedback, news and
help.
Most importantly, franchisees are given opportunity to contributes to the running
of the U.K McDonald’s through their representatives on the National Leadership
Group
Development of new products and services for the franchisees to be able to
compete with others in the local markets.
Regular visiting and monitoring of restaurants by consultants on a fixed period
of time to maintain quality and uniformity in the system.
The researcher found that all the above arrays of support encouraged by the
organization to the franchisee on an ongoing basis contributed to the growth and
expansion of the business. Therefore, it was concluded that franchising is a strategic
relationship.
4.3.6 RISKS IN ADOPTING FRANCHISING AS A BUSINESS STRATEGY.
The reason for this question was to ascertain, the level of risks undertaken by
McDonald’s in adopting franchising as a business strategy.
The respondents mentioned that, although there are risks in adopting franchising, but
the risks are not prominent and can be controlled. Some of the identified risks by
respondents include the cost of establishing and maintaining a franchise network,
monitoring, control and motivating franchisees, risk of selecting the right franchisee and
so on.
The researcher observed that most of these risks are properly controlled, which makes
their effects less significant on the organization. Most importantly, the respondents
indicated that the less risks were as a result of the existing relationship between the
organization (franchisor) and the franchisee which contributes to the growth and
expansion of the organization. It was therefore found from the interviews that the level
of the risks assessment in the organization is low.
4.3.7 IMPACTS OF THE ECONOMIC RECESSION ON THE ORGANIZATION’S
GROWTH AND DEVELOPMENT.
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The question produced some very interesting views. It became clear during the
interview that the recession has not actually affected the organizations turnover as one
would expect. One of the respondents indicated “that the organizations turnover has
been on a record high with increased profit margin, because the franchisee restaurants,
where most of the organizations revenue comes from, are also making profits, despite
the recession in the economy”.
But on the contrary, another respondent indicated that “the global economic downturn
has led to a severe decline in consumer confidence. Consumers now have less money for
discretionary purchases as a result of job losses, foreclosures, and bankruptcies and
reduced access to credit. A decrease in consumer confidence and the resultant curbed
consumer spending have resulted in decreases in customer patronizing the restaurants.
McDonald’s Business is highly sensitive to changes in customer behaviour and the
current economic downturn has put downward pressure on the company's margins”.
But despite this, both respondents indicated that the organization still delivers strong
sales, even at an unexpected margin.
4.3.8 CONTRIBUTIONS OF MCDONALD’S TO THE SOCIO-ECONOMIC
GROWTH OF UNITED KINGDOM.
The result of the interviews indicated that McDonald’s like all other franchised business
positively contributes to the economy. The respondents identified some of the
contributions including: employment generation, agricultural development, economic
development (through tax paid to government, other financial activities that involve
revenue generation into the economy like those involving the organization’s suppliers),
and educational development through the apprenticeship programme and so on.
One respondent mentioned that “franchising has grown rapidly over the last decades
and the impacts have been positive on the economy, and McDonald’s also contributes
to this”.
The interview reveals that the McDonald’s has become a focus of attention for many
redundant individuals in the economy over the past months.
It was gathered during the research that, the organization now uses the free range eggs,
and 100% organic milk from the British farmers. This has change the attitude of the
farmers and inturn contributes to agricultural development and also as employment
generation for local farmers.
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One respondent indicates “that McDonald’s now contributes to the economy by
introducing the apprenticeship programme offered to its staff, and it has now extended
to the interested individuals in the country”. The training is accredited by City and
Guilds, which is a nationally recognized qualification, equivalent to five GCSE Grades.
Other contributions identified during the research are the RMHC (Ronald McDonald’s
House of Charity) programme, a support to families with children in the hospital across
the country, and sponsorship of the F.A Community football competition yearly. The
researcher after the above analysis concludes that McDonald’s contributes to the socio
economic growth and development of the country, and the effect has been an important
one.
4.3.9 CHALLENGES FACING THE ORGANIZATION (MCDONALD’S).
From the interview conducted, the respondents indicated some of the major challenges
facing the organization which affects the organization’s development, includes:
The effect of the global economic downturn which affect consumer spending
adversely.
The reports that most of the menu is causing ‘obesity’ in children.
Health concerns arising from outbreaks of avian flu, and
Intense competition faced by organization on the daily basis with the
introduction of different names on the high street food retail business.
It was noted that, all the above challenges affects the organization, though not much, but
the effects can be felt on the overall organization’s turnover.
One respondent indicated that “If consumer preferences change and the restaurants are
unable to compete successfully with other competitors, then McDonald’s business could
be adversely affected”.
4.4 DISCUSSIONS OF THE FINDINGS OF THE FRANCHISEE AND THE
FRANCHISOR.
This section presents a critical analysis of the findings, with reference to the research
aim, the objectives (See 1.5), literature reviewed and the principal research questions
(See 2.18).
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Despite the sample size, it can be indicated that the research respondents are well versed
with events in the retail franchising sector. The issues discussed do provide useful
insights into the importance of franchising as business growth and expansion strategy in
the retail business sector. The discussions then explain and compare the views from
both perspectives and relate them with the practicality of the research objectives in
paragraphs.
The findings from both respondents have shown that franchising is a very good strategy
to use for business growth and expansion. Both respondents indicated clearly that the
strategy has been satisfactory and has brought a positive change into their businesses
since adoption. The respondents reiterated that the model has been very good
internalization and marketing strategy.
It was found that the franchisee is actually gaining back a good return for his investment
in a franchised business and the franchisor’s responses also indicates positive and strong
turnover since adopting franchising. They both mention all the advantages that
franchising has brought into the business which was identifies as the major reasons for
the business growth and expansion. Both respondents indicated that they now have
advantages of operating efficiencies and economies of scale through franchising their
business. This is an example of a “responsible franchising”, (See 2.5)
The franchisee indicated that in less than three years as a franchised restaurant, the sales
(turnover) has increased up to 40%, and the recognition awards got by the restaurant in
2009 was as a result of the restaurant’s brilliant performance as a franchised outlet and
the franchisor also indicated that their business keeps hitting record high because of the
improvement in sales from the franchisee’s restaurants. For instance, the organization
announced a record breaking performance in Year 2009 with like-for-like sales up to
11% and a 7.5% increase in customer visits, Web1
Therefore, the researcher discovered from the research analysis that franchising has
actually play a major role in the business (McDonald’s) in terms of the expansion and
development, hence the findings justify the objective one of this research.
The relationship in existence between both parties was described as cordial, mutual,
positive and satisfactory according to the findings. This relationship was described as
the secret behind the organizations growth. The research reveals that the important of
the relationship in any franchise agreement is very important. Both respondents
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indicated that all the success, growth and developments of whatsoever recorded by the
organization especially in this hard economic period, was as a result of the good
working relationship in existence between both parties. The research was able to deduce
that the level of the relationship between both parties is like a ‘marriage’. They both
indicated that the level of reliance on one another is very high, where they both
indicated that the relationship is a vice-versa one. One of the respondents from the Mc
Donald’s U.K headquarters, describe the relationship as a “causal and strategic”.
The research also reveals that, the franchisor encourages the franchisees to contribute to
the development of the business, which promotes a good working relationship that is
beneficial to both, (See 2.8).
Both respondents’ points to the importance of the relationship to the organization’s
growth by mentioning the benefits derived from the increased restaurant sales, which
inturn increased the percentages of the restaurant’s contribution to the franchisor’s
overall turnover, which comes from rent, royalty, corperative marketing fee and so on.
Therefore, the researcher affirms that the relationship is a vice-versa phenomenon which
has contributed to the growth and development of the restaurant and the organization.
This therefore justifies the literature reports about the positive relationship in any
franchising business sector, (See2.8). Hence, according to the research second objective,
the relationship therefore contributes to the growth and development of the organization
(McDonald’s).
In discussing the objective three of the research. Both respondents indicated that there
exists a risk in adopting franchising as a business strategy, (Cross, 2008:10 & Aboud,
2009). The research found that the effects of the risks are very minimal because they
were usually in control by the organization which makes the effects less significant on
the business growth. Some of the risks identified in the research includes, huge costs
involved in setting up franchise network, risk of selecting a right franchisee, risk of
monitoring, controlling and motivating franchise and so on, while on the other hand,
franchisees identified risks includes contractual restrictions, lack of independence,
oversaturation, restriction on sale of business, withdraw/cancellation of the agreement if
some provisions are not met in the agreement, and so on. But the researcher concludes
that, despite all the identified risks by respondents, McDonald’s still records high profit
margin, (See 1.2) which according to the research was also as a result of the established
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and the existing relationship between the franchisee and the franchisor, (See 2.8) and
the ability to control and maintain those identified risks.
It was observed that, although there exists risks in adopting franchising as a business
strategy, (See 2.9) but if controlled, the effect is less significant. This research
concludes that the effects of the identified is less significant on the organization, and
therefore does not affect the organization’s growth.
Further discussions on the effects of the global recession on Mc Donald’s growth and
developments reveals that majority of the restaurants in London and in United Kingdom
are partially affected by the economic downturn. The research reveals that despite the
recession affecting most sectors, the impacts are minimal on franchise business
globally.
From the findings, the franchisee’s reveals that the business is not adversely affected by
the recession, because the restaurants are recording huge profits turnover, (Appendix 2).
Although they indicated that the consumer spending may be affected, but due to the
nature of the business, as a fast food outlets, most restaurants still have their loyalist
identified with them.
On the other hand, one of the franchisor interviewed argues that “The global economic
downturn has led to a severe decline in consumer confidence, consumers now have less
money for discretionary purchases as a result of job losses, foreclosures, bankruptcies
and reduced access to credit”. From this interview, the franchisor’s view was a bit
difference to that of the franchisee, and was concluded that the effects is less significant
on McDonald’s.
To the franchisor, the organization still feels the effect of the recession, because it
affects some other businesses that have direct relationship with the organization, like the
suppliers. For instance, according to the Year 2009 financial report, it was indicated that
the organization’s overall generated revenue was less than what was recorded in 2008,
but despite this, the company announced Year 2009 to be another year of ‘strong
results’. Web 1(Appendix 1).
Therefore, based on the observations by the researcher, McDonald’s does not felt the
impact of the recession, because the restaurants turnover has been on a record level, for
at least last 7 month, hence contributes to the organization’s revenue turnover. The
researcher therefore found that the organization’s (McDonald’s), though partially
77
affected by the impacts of the recession, but there is still substantial growth, expansion
and development recorded in the organization.
The contributions of the franchising (franchised businesses) in the United Kingdom,
has been substantial over the years as gathered from the literature and the findings.
From the interviews, it was found that the contributions of the franchised business are
positive on the economy. Both views identified some of the organization’s contributions
to the economic and social development of the country. Although, these was described
as “corperative contributions” by the respondents, because of the nature of the business.
Both groups of respondent mention same contributions, and also found that some
franchised restaurants despite their involvement and contributions to the national
contributions, still have individual contribution(s) to the local economy.
The researcher found that franchising has grown rapidly over the last decade and now
makes important contributions to the UK economy. The NatWest/BFA 2008 franchising
survey reveals that the estimated economic contribution of the franchising industry has
increased from £7 billion to £12.4 billion (calculated using the estimate for mean unit
turnover). For instance, it was found that franchising outstripped growth in the UK
economy as a whole for the second year running. In 2007, national GDP grew by 3.1%
compared with an impressive 15% growth in the total turnover of the franchising
industry, (O.N.S). According to the study, data indicates that economic growth is
slowing in the U.K mainly because of the recession, but still the strong performance of
franchising has been positive for the economy.
The research also confirmed those areas in which McDonald’s has contributed to the
economy as part of the franchised sector including the RMHC( The Ronald McDonalds
Charity Programme), contribution to the employment structure, agricultural
development, sport development, and so on.
Finally, the researcher was able to conclude that the contribution of franchising to the
economic and social development is very alarming and that McDonalds has played an
active role in this economic growth over the years. This therefore justifies the objective
five of this research.
4.5 SUMMARY.
78
From the analysis and discussion, it was evidenced, franchising has played an important
role in retail business growth and expansion. Its role in the economic development was
examined. The research also found that franchised business sector has not been
adversely affected by the recession, and the effects of risks on most franchised
businesses were found to be minimal. The research also found that franchising is
becoming popular in the emerging world economy, like in the U.K. Finally, the research
concludes that franchising remains the key to global economic recovery.
CHAPTER FIVECONCLUSION AND RECOMMENDATIONS
5.0 INTRODUCTION.
This chapter reveals all the issues discussed in the research with respect to the aim and
the objectives. It also discusses recommendations for improvement in franchised sector
and for similar future research.
5.1 CONCLUSIONS.
The informations gathered during the research shows that franchising is a model that
plays a major role in business growth and expansion, especially in the retail food
business. The findings justify the importance of franchising as a successful model to
adopt when planning business set up.
The study reveals the advantages and the importance of adopting franchising by the
franchisee and the benefits enjoyed by the organization (McDonald’s), which was
indicated by both respondent groups as a major factor that has contributed to their
growth and development. The literature evidences has also indicated the importance of
franchising as a successful model to consider by entrepreneurs planning business set up.
Sherman, 2003:11, HSBC 2009:2)
79
The study also reveals the importance of mutual relationship in franchising business,
especially at McDonald’s. The findings indicated that the existence of honesty, passion,
trust and genuine commitment to each other in the relationship contribute to the success
and growth that were been recorded by the organization nowadays. The study indicated
that one of the aspects that have made franchising to be a success model today in the
business environment is as a result of its continuation as a ‘strategic relationship’. As a
strategic long term process, the research found that both respondents depend on one
another for success. Both parties in this relationship are regarded as making a voluntary
and bilateral decision to create a mutual beneficial relationship.
It was found from the literature and the interviews that the absence of enemity between
the parties, respect and been loyal to one another , and more importantly continuous
search for ways of strengthening the bond between each other has contributed to the
success story of McDonald’s today. (Sherman, 2003:9&10). The franchisee was
identified as enjoying the freedom to operate the franchise with compliance to the strict
rules provided by the franchisor.
Finally, it was revealed that all the above strategic aspects of the relationship are
important and inevitable elements that often determined the relative success of the
organization.
In looking at the effects of risks on the organization’s growth, it became apparent that
the risks have not affected the organizations negatively as one will expect despite
identifying some risks by the respondents.
Some of the risks identify by the research includes huge costs involve in franchise
network agreement, monitoring, control and motivating franchisees, Risk of selecting
the right franchisee, contractual restrictions, lack of independence, restriction on sale of
business e.t.c, but on the other hand, it was concluded that the effects were not as
devastated as expected, because in most cases, they are taken care of according to the
respondents. The study therefore reveals that the organization’s growth and expansion
has not been affected, despite the presence of these risks.
The fourth objective was to find out the effects of the global recession on the growth
and expansion of the organization. The responses produced different views from the
franchisee and the franchisor. The franchisee’s believed that, the recession have not
significantly affected the business, while one of the franchisor’s interviewed indicated
80
that, though not badly affected, but the organization is still suffering from the effect of
the recession due to the decrease in customer’s visits. Though, the researcher found out
that the customers purchasing power is affected, which has made consumers to opt for
the value meals, but despite this, it was found that the organization still makes huge
record profit like most McDonald’s outlets globally during the recession. It is therefore
concluded that the organization is not affected by the recession as it would have been
expected. The study concluded that “McDonald’s has added to its gained share in a
declining eating out market in Year 2009”.
There is no doubt that the success of McDonald’s like other franchised businesses in the
U.K have contributed immensely to the growth of the country. Documentary review and
the interview responses confirmed some of the contributions of franchising, most of
which according to the respondents is ‘corperative’, because most of the contributions
are anchored by the headoffice (franchisor), but the franchisee’s restaurants do
contribute to it.
It was also observed, that the franchisee’s restaurants also do have their own individual
contributions to the local community, and this report identified this in case of the
restaurant.
Evidence from the literature,(Aboud,2009 &NatWest/BFA,Survey,2009:9-12) also
confirm the contributions of the franchising business to the development of the
economy over the years, in terms of the economic, social, political, and employment
development.
The overall findings of this research has points out to those areas in which franchising is
important to the growth of most business, the aim and the objectives of the research has
been achieved by providing answers to all the research questions.
5.2 RECOMMENDATIONS.
Based on the findings and documentary reviews, the author found that certain
recommendations need to be made specific to the franchisee, the franchisor, potential
franchisees, and for further research study.
5.2.1 FRANCHISEE.
81
Despite a very good relationship in existence between both parties, and growth in the
business. The researcher employs the franchisee to encourage the continuity of this
mutual relationship which is inevitable for the continuous growth of the business.
Improvement on the staff welfare is very important for the restaurant growth. The
franchisee should invest more on the training and development of the employees. The
franchisee need to build on personal relationships, improve on the customer service and
also improve on the involvement of the local community. There need for the availability
of committed money in the business especially during recession, therefore good
relationship with banks is highly recommended and in all the franchise need to work
hard and remain focus in the relationship, all these brings more growth and
development.
5.2.2 FRANCHISOR AND PROSPECTIVE FRANCHISE.
The research identified some of the risks in franchising especially in McDonald’s, but
most of which have minor influence on the growth of the organization as a result of
good working relationship as found in the research. Like the franchisee, the franchisor
must ensure continuous and sustainable long term relationship to maintain the growth
and expansion in the organization, (See 2.8).
They both have to be careful in their selection by looking at the past business history of
the organization, financial strength, documented system, training and support available,
and the security of the tenure need to be properly assessed before choosing any
franchise. More importantly potential entrepreneur need to check the membership and
involvement of the interested organization in activities of the regulating institutions like
the British Franchise Association (bfa) and others. Internal assessment need to be
considered as well, by examining the financial strength, without over extending the
finance. There need to be market evaluation by both, to assess the degree of demand of
the product on offer, evaluate the organization’s competitors, and do a bit of the
interested company SWOT analysis. All these are some important things to consider
before choosing any franchise.
5.2.3 FUTURE RESEARCH.
82
This study has been designed to examine the importance of franchising in the retail food
industry. It was found that there has not been much study on other franchising types,
despite the popularity in franchise business sector nowadays. Therefore, the researcher
advice more concentrations on other franchising areas like management franchise,
home-based franchise and so on.
Historically, franchising has been a white, male dominated industry but things are
changing. Though, women now make up over a third of new recruits entering into the
business nowadays, female representation is being driven by the growth in the Personal
Service sector, where women make up 61% of franchise owners.(BFA/NatWest Survey,
2008:27), future studies should focus more on women franchising prospects to
encourage for more women into the franchise sector.
Because of the unavailability of the managers in fixing appointments for the interviews,
the research focuses on a very small size of respondents. It is therefore recommended,
that the future study should use a larger sample size and a survey or a more structured
method of collecting data, in order to have a broader perspective of the research.
Conclusively, It was concluded that it becomes necessary to include the views of the
customers,(end users of the franchised products), banks and other stakeholders in the
future research in order to have a wider knowledge of the topic. Their perceptions on the
findings become necessary to ascertain to what extent, their influence and behaviour
affects the expansion and growth of the franchised business and how important they are
in the whole relationship.
83
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WEBSITE REFFERENCES
Web 1 – www.phoenix.corporate-ir.net/phoenix.zhtml assessed on 25th/01/2010
Web 2- www.web.ebscohost.com/ehost/ companyinfo, assessed on 10, 11, 17/12/2009
Web 3- www.mcspotlight.org/ company_history.html, assessed on 21st /12/2009
Web 4- www.statistics.gov.uk/ census2001, assessed on 10th/12/2009
Web 5- www.londononline.co.uk/ factfile / population, assessed on 10th/ 12/2009
Web 6- www.telegraph.co.uk/finance/newsbysector/retailandconsumer cited on 24th
/01/1010
Web 7- www.franchise-chat.com/ bookreviews/e- factor.html, assessed on10th/
01/2010
APPENDIX 1
MCDONALD’S CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF INCOME
Dollars and shares in millions, except per share data Inc/ (Dec)
Years ended December 31, 2009 2008 $ %
Revenues
Sales by Company-operated restaurants $15,458.5 $16,560.9 (1,102.4) (7)
Revenues from franchised restaurants 7,286.2 6,961.5 324.7 5
TOTAL REVENUES 22,744.7 23,522.4 (777.7) (3)
Operating costs and expenses
Company-operated restaurant expenses 12,651.2 13,652.9 (1,001.7) (7)
Franchised restaurants-occupancy
Expenses 1,301.7 1,230.3 71.4 6
Selling, general & administrative
Expenses 2,234.2 2,355.5 (121.3) (5)
98
Impairment and other charges
(Credits), net (61.1) 6.0 (67.1) N/M
Other operating (income) expense, net (222.3) (165.2) (57.1) (35)
Total operating costs and expenses 15,903.7 17,079.5 (1,175.8) (7)
OPERATING INCOME 6,841.0 6,442.9 398.1 6
Interest expense 473.2 522.6 (49.4) (9)
Non operating (income) expense, net (24.3) (77.6) 53.3 69
Gain on sale of investment (94.9) (160.1) 65.2 41
Income before provision for income taxes 6,487.0 6,158.0 329.0 5
Provision for income taxes 1,936.0 1,844.8 91.2 5
NET INCOME $4,551.0 $4,313.2 237.8 6
EARNINGS PER SHARE-DILUTED $ 4.11 $ 3.76 0.35 9
Weighted average shares
Outstanding-diluted 1,107.4 1,146.0 (38.6) (3)
N/M -Not Meaningful
SOURCE: McDonald's Corporation Website Web1
APPENDIX 2
STRAND MC DONALD’S MONTHLY SALES FIGURES FOR YEAR
2008 AND 2009.
MONTHS MONTHLY SALES 2008(£) MONTHLY SALES 2009(£)
JAN 291, 968.44 46, 237.18
FEB 292, 135.29 345, 426.04
MARCH 316, 201.7 354, 215.22
APRIL 318, 857.45 378, 394.78
MAY 330, 336.88 367, 920.18
JUNE 307,848.51 323, 440.33
JULY 400,405.68 407, 898.80
AUGUST 397,848.03 398, 132.71
SEPTEMBER 329,162.03 349, 561.85
99
OCTOBER 395,228.13 422, 986.00
NOVEMBER 347,544.26 356, 968.27
DECEMBER 397,495.55 431, 507.52
TOTAL: 4, 125,031.98 4, 482, 688.88
Source: The Strand McDonald’s Account Department.
APPENDIX 3
GLOSSARY OF FRANCHISING TERMS
There are different terminology used in franchising, and this includes
Franchising: A method of business expansion characterized by a trademark license and
payment of fees and significant assistance and/ or control.
Format: The name given to the business system offered in a business format franchise.
Business format Franchise: The business format franchise is the grant of a license by
one person (the franchisor) to another (the franchisee), which entitles the franchisee to
trade under the trade mark/ trade name of the franchisor and to make use of an entire
package, comprising all the elements necessary to establish a previously untrained
person in the business developed by the franchisor under a distinctive brand and to run
it with continuing assistance on a predetermined basis (Mendelsohn ,1999 )
Franchise: A license that describes the relationship between the franchisor and
franchisee including use of trademarks, fees, support and control.
Franchisee Fee: The initial one-off payment charged by the franchisor to cover the
license giving the right to operate the system, a share of the franchisors own start- up
and the cost of recruiting the franchisee.
100
Management Services Fee: Calculated on an ongoing basis as a percentage of the
franchisees sales, the management service fee forms the franchisors principle source of
income.
Mark- Up: A margin placed on goods supplied by the franchisor to the franchisee,
normally either a management fee or a mark- up is employed nor both.
Franchise Agreement: The legal, written contact between the franchisor and franchisee
which tells each partly their obligation to each other.
Franchisee Package: The package includes the franchise agreement, the operating
manuals and business systems, the prospectus and the services offered by the franchisor.
Pilot Franchise: A business running at arm’s length to the franchisors core business
that operates in precisely the same way as is laid down in the franchise operation
manual.
Operation Manuals: The documentation which sets down how the franchise is to be
run including issues such as supplies, marketing and accounting procedures.
Franchisee: The person or company that gets the right from the franchisor to do
business under the franchisors trade mark or trade name.
Franchisor: The person or company that grants the franchisee the right to do business
under their trademark or trade name
Trade mark: Franchisor’s identifying marks, brand name and logo that are licensed to
the franchisee
Product Distribution Franchise: A franchise where the franchisee simply sells the
franchisor’s product without using the franchisor method of conducting business
Disclosure Statement – Also known as the UFOC, or Uniform Franchise Offering
Circular, the disclosure document provides information about the franchisor and
franchise system
Royalty: The regular payment made by the franchisee to the franchisor, usually based
on a percentage of the franchisee’s gross sales.
UFOC: The Uniform Franchise Offering Circular, UFOC, is one format for the
disclosure document which provides information about the franchisor and franchise
system to the prospective franchisee
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APPENDIX 4
Introduction Letter Used For The Interview.
Dear Sir/Madam,
My name is Lateef Olushola Salami. I am a postgraduate student, pursuing an MBA in
International Business at University of Wales, (UWIC), Cardiff. Currently, I am
required to undertake a dissertation on “HOW DOES FRANCHISING PLAY A MAJOR
ROLE IN RETAIL BUSINESS GROWTH AND EXPANSION IN THE FOOD
INDUSTRY”? A CASE ANALYSIS OF MC DONALD’S RESTAURANT, STRAND,
LONDON.
I would like to conduct an interview with you in respect to my research. It would be
greatly appreciated if you could assist me by providing some informations, which will
help in completing the dissertation, with assurance that the information and any
company information provided will be kept confidential and will be used strictly for this
research.
Your assistance will be greatly appreciated and thank you so much.
Yours Sincerely,
102
L.O SALAMI
APPENDIX 5
INTERVIEW SCHEDULE/ QUESTIONS FOR FRANCHISEE (MANAGERS)
Part A (RESPONDENTS DEMOGRAPHIC CHARACTERISTICS)
1. Age, (optional) (a) below 20 Years...... (b) 20 – 39 Years...........
(c) 30—39 Years......... (d) 40 Years and above.......
2. Sex Optional) (a) Male............ (b) Female................
3. Marital status (a) Single......... (b) Married........... (c) Divorced........
(d) Separated.............. (e) Widow.............
4. Education Level (a) High School.... (b) Graduate...... (c) Post Graduate.....
(d) Others.....
5. Annual Income (a) Less than £10,000.......... (b) £10,000- £19,000.............
(c) £20,000- £29,000......... (d) £30,000 and above.........
PART B (RESEARCH APPRAISAL)
103
1. With your permission, Can I please know your position and the roles you play in this
company............................?
2. Can you please state how long you have been part of this company?
(a). below 10 Years...... (b) 10- 19 Years....... (c) 20- 29 Years........ (d) 30 Years and
above
3. Can you please, indicate how long this restaurant has been involved in franchising
agreement with McDonalds?
4. How would you please describe the impact of franchising (business format) on this
organization (the restaurant) in terms of growth and expansion since
franchised..................?
5. Can you please, comment on the advantages of been part of the McDonalds franchise
networks so far, in terms of the restaurants growth, development, training and
expansion...............................................................................................................?
6. Please how can you comment on the kind of relationship that exists between the
restaurant and the franchisor in terms of contribution to growth and
development..............................?
7. Please, do you think there have been any risks associated in adopting franchising as a
business strategy, please comment...................................................................................?
8. Can you please describe the impact of the recession on this organization’s growth and
development....................................................................................................................?
9. How can you describe briefly the benefits and contributions of “Mc Donald’s” to the
socio-economic growth of United Kingdom...................................................................?
10. Can you please comment on the major challenges facing this organization, which
you think affects the organization in terms of growth, development and
expansion..............?
11. Will you please, recommend franchising, for instance McDonalds franchising to an
entrepreneurs who is willing to go into food retail franchising.....................................?
104
APPENDIX 6
INTERVIEW SCHEDULE/ QUESTIONS FOR FRANCHISOR
Part A (RESPONDENTS DEMOGRAPHIC CHARACTERISTICS)
1. Age, (optional) (a) below 20 Years...... (b) 20 – 39 Years...........
(c) 30—39 Years......... (d) 40 Years and above.......
2. Sex Optional) (a) Male............ (b) Female................
3. Marital status (a) Single......... (b) Married........... (c) Divorced........
(d) Separated.............. (e) Widow.............
4. Education Level (a) High School.... (b) Graduate...... (c) Post Graduate.....
(d) Others.....
5. Annual Income (a) Less than £10,000.......... (b) £10,000- £19,000.............
(c) £20,000- £29,000......... (d) £30,000 and above.........
PART B (RESEARCH APPRAISAL)
1. What is your current position? (Please state)...........................................?
2. Can you please state how long you have been working with
McDonalds.............................?
105
(a) Below 10 Years...... (b) 10- 19 Years....... (c) 20- 29 Years........ (d) 30 Years and
above
3. Can you please, indicate when this company starts its operations in the United
Kingdom, and when it actually starts franchising as a business development
strategy..............................?
4. How can you please describe the advantages of franchising to the overall business
growth and development of McDonald’s instead of operating as a company
owned.........................?
5. How can you briefly describe the kind of relationship that exists between this
organization (McDonald’s) and its franchisee restaurants in terms of organization’s
growth, please...........?
6. How can you briefly comment on the risks faced by this organization in adopting
franchising as a business
strategy..............................................................................................?
7. Can you please comment on the impacts of the economic recession on the
organization’s growth and development..............................................................?
8. How can you please, briefly describe the socio-economic contributions of this
organization as part of franchised retail organization on the United Kingdom
economy...........................?
9. Can you please comment on the challenges faced by this organization......................?
106