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Jun
4
2019
STORIES

The History of the Franchise Business Model

The History of the Franchise Business Model

If you’re interested in opening a franchise business, read this blog post to learn how franchising has evolved through the years.

"Now, I know what you're thinking. How the heck does a 52-year-old, over-the-hill milkshake machine salesman build a fast food empire with 16,000 restaurants, in 50 states, in five foreign countries, with an annual revenue in the neighborhood of $700 million? One word: persistence."

This quote from the 2016 movie The Founder is supposed to explain McDonald's meteoric rise from a one-shop operation to a multi-billion-dollar enterprise. While Ray Kroc (portrayed by Michael Keaton) was quick to attribute the company's growth to his own ambition, one could argue there was another, more significant force at play: franchising.

After Kroc teamed up with the McDonald brothers, he quickly turned to the franchising business model to help the company grow. Today, there are nearly 40,000 McDonald's restaurants around the world, 90 percent of which are owned by franchisees. And McDonald's makes up just a small sliver of the franchise industry. There are more than 750,000 franchise establishments representing several thousand brands in the United States alone, according to the International Franchise Association (IFA).

Franchising has a long history of helping brands expand their reach and revenue, as well as helping entrepreneurs open businesses of their own (and in a lot more industries than just restaurants). The guiding philosophy behind a successful franchise system is the symbiotic relationship between franchisors – who get to expand while limiting their financial commitments – and franchisees – who get to operate their own business with the support of an established brand.

If you're thinking of opening a franchise business, not only is it important to get a deep understanding of how franchising works, but it also helps to know how the franchise business model got to where it is today.

The History of the Franchise Business Model

The Start of the Modern Franchise Business

While similar structures have existed since the middle ages, the modern franchise business model started to take shape in the late-19th century when a burgeoning company started allowing independent investors to sell its products. Isaac Singer, the man who ran that company, is widely recognized as the pioneer of modern franchising. Singer's company sold sewing machines that could knock out hundreds more stitches per minute than any other device available at the time.

To extend his product’s reach, Singer partnered up with investors around the country, allowing them to sell his sewing machines in specific regions in exchange for an upfront licensing fee. But Singer didn't let his partners do whatever they wanted. He put rules in place to make sure they sold his sewing machines a certain way – like requiring licensees to teach their customers how to use the devices.

The Franchise Business Model Takes Off

Over the next century, the franchising model grew at a steady pace, led by manufacturing brands like General Motors and Coca-Cola. But it wasn't until after World War II that franchising really started to take off. Bolstered by a soaring economy and growing consumer demand, the franchise model took off in the United States in the 1950s and 1960s. It seemed like every industry wanted in on the trend – with restaurant, hotel, dry cleaning and rental car brands all adopting the franchise business model.

The influx of new brands brought additional attention to the franchise business model and, with it, additional oversight. In 1960, the IFA emerged as a leading organization for franchisors, franchisees and other interested parties to come together and establish best practices and a Code of Ethics to guide the franchise industry.

In the late 1970s, the Federal Trade Commission started to define stricter guidelines for the industry. The FTC enacted a law requiring brands to provide potential franchisees with a Franchise Disclosure Document before investing. In the document, each franchise brand was to provide detailed information about the company (history, officers, litigation issues, etc.) and details about franchising with the company.  

The Growth Potential of Franchise Businesses

Several of today's most prominent names in franchising sprang up during that time and the period shortly after. The UPS Store, Entrepreneur's fifth-highest ranked franchise brand, got its start as Mail Boxes Etc. in 1980 as a convenient alternative to the post office. In 2001, UPS acquired Mail Boxes Etc. to later form a network of more than 3,000 The UPS Store franchise locations across the United States.

Proving the impact that the franchise model can have on growth, the number of The UPS Store locations grew by 166 percent over the next decade and a half. In 2017, The UPS Store franchise system hit the 5,000-store count across North America. That momentum was still alive and well in 2019 when Entrepreneur Magazine named The UPS Store as one the top 25 fastest-growing franchise brands.

Common sense would tell you that the more owners in a system, the less control a franchise brand would have over the quality of its business operations. But franchise brands can prevail in the face of this logic by establishing a robust system for training and supporting franchise owners. For example, despite its growth, The UPS Store was named as the top franchise brand in the postal, printing, communications and business services category for the past 29 years and as a top-five overall brand for the past half-decade by Entrepreneur Magazine.  

Investing in a Proven Business Model

The franchise business has come a long way since its humble beginnings. In 2018, IFA projected that the Gross Domestic Product of the franchise sector would grow by 6.1 percent to top $450 billion. So, not only does franchising have a long history of success, the business model is getting even stronger – an excellent sign for anyone considering opening a franchise business.

Entrepreneur's Franchise Top Rated for Veterans in 2020 badge

We Proudly Support Our Veterans

Participating partners with the VetFran program, The UPS Store offers qualifying veterans $10,000 off their franchise fee to start their new business. To learn more, contact The UPS Store Franchise Development Team.

Entrepreneur's Franchise 500 Ranked #3 in 2021 badge

Ranked for over 30 Consecutive Years

The UPS Store has been ranked #1 in the postal and business services category for over 30 years and remains in the top 5 overall for the fifth consecutive year according to the Franchise 500 list.

Kristin Howard

Franchisee, Michigan

The reason my husband and I decided to go into franchising and specifically with The UPS Store, is the different opportunities we're given with the business. The UPS Store has name recognition as well as opportunities to expand.

Debbie Adams

Franchisee, Kentucky

What I enjoy most about being a The UPS Store owner is working with my customers. We are the solution specialists for our customers.

Jim George

Franchisee, Illinios

My favorite part about The UPS Store network is the camaraderie with other franchisees. Everybody loves to help everybody else. You’re really part of a family.

Greg Murray

Franchisee, Florida

The interesting thing about The UPS Store is that when a customer walks through the door there's an extremely high probability that they're coming there to do something that is important to them. So at the end of the day, what we do for customers is very important and they are trusting that we are going to do it well.

See the Full Testimonial

Mariana Huberman

Franchisee, Washington, D.C.

One of the things that I love about The UPS Store franchise system is that you're not ever in this by yourself. The franchisees of The UPS Store network are great.

Heidi Morris

Franchisee, Colorado

The thing I enjoy most about being a The UPS Store franchisee is I get to get up, go to work and know that I'm helping other business owners succeed in what they're doing.

Bob Brown

Franchisee, Tennessee

Owning a The UPS Store franchise has changed my life because it's finally given me the opportunity to engage my customers and my staff and be able to take real pride in what I do. As a franchisee, we get faced with solving peoples' problems every day and we do everything we possibly can to try to help.

Marie Jensen

Franchisee, Oregon

My favorite thing about The UPS Store is the variety. I love the variety of customers, I love the variety of services; getting to know the customers, meeting their needs, finding out how we can help them accomplish what they need to accomplish and seeing how happy they are. That makes me ecstatic.

Tad Mollnhauer

Franchisee, Florida

With the products and services that The UPS Store provides we can make a difference in people's lives and that is the best reason for being a The UPS Store owner.

Joy Batchelor

Franchisee, Idaho

What makes being a The UPS Store franchisee worthwhile at the end of the day is the customers. The customers treat us like we're family.

Paul Erchinger

Franchisee, Texas

One nice benefit of owning a The UPS Store franchise for me has been that it gives me the opportunity to be more involved in the community. As I make relationships with others it seems like no matter what the environment is, in one way or another business comes out of that and that's not my objective—it's been a secondary benefit to being involved in the community.

Chris Reminder

Franchisee, Ohio

There are several things that I really enjoy about being a The UPS Store franchisee. First and foremost it allows me to get to know the people in the local community and that is a lot of fun. We get to see people on a regular basis. We get to know their life stories. That's a lot of fun.

Bruce Jones

Franchisee, Kentucky

Since we have joined The UPS Store, our life has changed by just having more time to spend together as a family. We've been very fortunate with the stores that we have and we have a great staff that looks out for our best interest and we look out for theirs.

Lonnie Williams

Franchisee, Oklahoma

What makes The UPS Store so successful is it gives each individual an opportunity to grow with the network and just meet the challenges that are brought to them on a daily basis. Every day gives us a new opportunity to help another person, to help another small business, to answer a question and to solve a problem.

Jeff Graham

Franchisee, Alabama

I love my customers. I love my employees. I love every person, every face that comes into my store. I enjoy every day going into work and I can't see doing anything else for the rest of my life.

Stacie Stigar

Franchisee, Alaska

I think that this franchise is so successful because of all of the resources that are available to us as center owners—we have marketing materials, we have so many different opportunities for help from the home office, and it just really makes for a great franchise.

Don Pollard

Franchisee, New Jersey

I think the thing that makes this franchise successful is a number of things. First of all we have an outstanding system, we have a great product, a great brand, and we're able to attract dynamic people to run these centers and run the business. So I think when you put all that together it really provides for a winning combination.

Mary Ellen Nichols

Franchisee, Tennessee

The thing I love about the franchise is that you have the UPS name backing you but yet you also have the autonomy to make your own decisions to promote.

Laura Griffin

Franchisee, Florida

In the eight short months I've owned my The UPS Store it has really changed my life. I've gone from being an employee of someone else to being an employer of my associates. It's a big responsibility but it's exciting every day.

Sandy Scandrett

Franchisee, Wisconsin

Being a The UPS Store franchisee has improved every aspect of my life. It's very rewarding financially, professionally, and emotionally. I have a large number of regular customers who are really, really appreciative of everything we do.

Kristie Robison

Franchisee, Alabama

I would say owning a The UPS Store location has changed my life to where I have more time and flexibility. In owning your own business you get your store up and running and you get employees that you can trust that are going to help keep your store running. This allows me to attend my two boys' ball games and also travel and do things with them so it has really changed my life for the better.