- franchises as a popular form of business ownership
- franchises as "customers" in B2B
- franchises as the most popular way to sell branded consumer products and services
last updated 2012 Nov 26
. This page used in the following courses taught by Prof. Richardson
BIT 801
BUS 106
MRK 106
Advantages Advantages of Franchising
  • Management and marketing assistance
  • Personal ownership
  • Nationally recognized name ( )
  • Financial advice and assistance
  • Lower failure rate than traditional independent businesses

- some of the following points come from 
"Understanding Canadian Business" 5th Ed. and "Understanding Canadian Business" 7th Cdn Edition

Disadvantages Disadvantages of Franchising
  • Large start-up costs
  • Shared profit
  • Management regulation
    • rules and limitation about menu items, product offerings, advertising
  • Coattail effects
  • Restrictions on selling
  • Fraud - dishonest franchisors trying to trick new franchise owners

- some of the following points come from 

"Understanding Canadian Business" 5th Ed. and "Understanding Canadian Business" 7th Cdn Edition

. The intensity of the competition in the franchise industry, among fast-food franchises, was profiled in a detailed article in Maclean's magazine November 2012.

The article 
discusses pricing strategies, facility layout, menu offerings, competition for market share and many other parts of the franchise industry.

The article discusses, in particular, the competition among McDonalds and Tim Hortons and deals with how each chain is tweeking menu selection, facility layout etc. to get customers to leave one chain and patronize the other.

McDonalds, which recently lost first place globally to "Subway" as the fastest growing franchise with the most locations, saw sales decline in October 2012 for the first time in a decade.

The # 1 most famous franchise in Canada
   o CBC story about the origins of Timmies

   o CBC story about Tim Horton's values Versus Starbucks 

   o CTV story: Troops in Kandahar to get a Tim Hortons shop 

   o Tim Hortons in Kandahar alomg with many US franchises


What is the history of franchising?   "How did it all start?" 
Have a look at the first few questions in this online FAQ

Types of
"More than 750,000 franchise businesses constitute the North American small business landscape, generating more than Can$1 trillion in sales. With a new franchise business opening somewhere in the United States every few minutes each business day.."

see also

Profitable? "Although the success rate for franchise-owned business is generally better that the success rate for many independent  businesses, there is no formula to guarantee victory. The same may also be said of the profits generated. Often the  margins you make are a reflection of your ability to properly run your franchise, however you may be able to get a  document from the franchisor that illustrates the typical franchise earnings. If the franchisor does not provide such a document, you should contact a number of franchisees in the market you are interested in and seek their advice on the business' profitability. One bad apple does not mean the concept is flawed, so be sure to speak with at least five  franchisees." 
How do I investigate the franchisor? This is critical in a business environment where many people have been scammed over the past few years. 

"Acquire the franchise document (Uniform Franchise Offering Circular), which is often referred to as the UFOC. This document is prepared in accordance with the requirements of the Federal Trade Commission (FTC). It contains information on the principals, their backgrounds audited financials and a lot of other pertinent data - including the current franchise agreement. Included in the UFOC is a list of franchisees, which we suggest contacting and if  possible, visit prior to commitment. Be certain that you like the business. Gather candid comments from a representative number. If you reach someone who seems negative, attempt to determine if the comments appear legitimate. Don't assume the business model is the problem solely because you speak with a negative person.  Furthermore, if you can see the franchisor prior to your investment, we suggest taking the opportunity to meet the  people you will depend on for support." 

Considerations into getting a franchise in an online forum about franchises, different people post messages about
   o having enough money
   o being old enough
   o having enough business experience

"Buying a franchise is a major decision. The commitment in capital and time is significant. You need to think through the process carefully, starting with an assessment of yourself and your motivations. Read as much as you can on the subject ..." 

from the CFA website

This is the main web site for the 

The association serves the Franchisors as opposed to the Franchisees


In addition to talking about how (in an entrepreneurial way) to select a franchise and develop a SME, we will also spend a bit of time on the question of "If your business is taking off, what about growing it by selling franchises to other people"


This web site serves people who have a successful growing business and want to expand by franchising.

"Dreams fuelled by fabled franchise success stories have helped build a $90-billion business in Canada"

Gigi Suhanic, Financial Post
2002 Aug 31

The Introduction
- how franchising originated
- some problems
- recent legislation to protect people who buy a franchise

written by Gigi Suhanic
"Franchising has been  likened to the Wild West, with entrepreneurial cowboys breaking new ground in the business world and making up the rules as they went along.

 Kentucky Fried Chicken and Dunkin' Donuts were among  the first chains to start selling franchises. But  it was Ray Kroc, founder of McDonald's Corp., who saw in franchising the opportunity to build a national brand and in the 1950s travelled the United States selling franchise  licences for US$950.

Mr. Kroc's vision played out as he hoped it would. The Golden Arches took hold from coast to coast. And it was franchisees who came up with the chain's most famous products, including the Bic Mac and Egg McMuffin, as  well as mascot Ronald McDonald.

Yet the annals of franchising are full of  horror stories, too. In  one messy case in the mid-'90s, 50 Pizza Pizza franchisees sued head office alleging it overcharged them for rent, advertising and other fees. They won  the case and were  awarded $1.6-million.

 Franchising is a  $90-billion business in Canada. In 2000, Ontario passed the  franchise disclosure  act to bring some order to the unregulated sector.The act, which mirrors legislation in Alberta, requires that franchisors disclose to a potential franchisee all "material facts" --   for example, the financial health of the franchisor and failure rates in the franchise- 14 days before any  agreements are signed or any money is paid.

If any misleading information is given, the franchisee has the right to cancel the franchise for up to two years after the  purchase and get his investment back plus damages, says John Sotos, a lawyer for franchisees in the Pizza Pizza case who also helped develop  Ontario's franchise act. The act also says franchisees in Ontario are protected from retribution if they attempt to organize a franchisee association."


" Ninety-five per cent of Tim Hortons stores are franchisee-owned and operated, the remaining 5% being stores that are "in flux or  transition," says Patti Jameson, vice-president of corporate communications for TDL Group.

According to the Tim Hortons Web site, a franchise costs
 anywhere from $375,000 to $425,000, excluding taxes. At least  $127,500 of the total cost must be in available cash, on top of  another $50,000 in at-hand working capital. The rest can be  financed through a bank loan. That buys a franchisee eight weeks of training at the Tim Hortons  Training Centre in Oakville, Ont., which has classrooms and a fully outfitted store. The cost also covers all store equipment, display  equipment, signage, a store opening crew, use of Tim Hortons manuals, the right to use trademarks and trade names and  support from headquarters. Franchisees are tenants of Tim Hortons, which selects and purchases sites for stores and builds the restaurants.  In addition to rent, franchisees are required to pay to the mother ship a 3% royalty and a 4% advertising fee based on gross sales. To guard against any variation in taste in a Tim Hortons Iced  Cappuccino or a double chocolate doughnut, most food supplies  must be purchased through Tim Hortons. "All of our mixes and food items are manufactured to our specifications," says Ms.  Jameson. "It's important to use only Tim Hortons recipes."  A licence agreement usually lasts for 10 years with the option to renew for another decade. If a franchisee wants out, then the store is sold back to the corporation"


"McDonald's has more than 30,000 restaurants worldwide,  including more than 1,250 in Canada. "Most of Canada is covered," says Ken Fong, vice-president and general counsel for the fast food giant in Canada. Unlike the '80s when the corporation kept a waiting list, one is no longer maintained. Mr. Fong says many of the franchises are now into second-generation ownership and those stores that do come  available are often offered to current operators. "There is limited  opportunity because McDonald's [Canada] is a mature franchising  system," he says. Franchises range from US$455,000 to US$768,500, with  franchisees required to have a minimum of US$175,000, which includes the US$45,000 franchise fee.  The price tag covers kitchen equipment, signage, decor and  landscaping. McDonald's picks restaurant locations and owns the building, charging franchisees rent based on 9% of gross sales. Royalties and advertising costs are calculated on a maximum of 4% of gross  sales. Supplies are made available to franchisees through contracts  negotiated by head office. Franchisees must attend a two week course at Hamburger U."  Centres in Canada are located in Toronto, Montreal and British Columbia. They also must do in-store training of six months."

May. 25, 2003
"Franchise fracas"

The Toronto Star ran a very large article May 2003 about the problems that franchise owners have, and they used the example of 3for1 Pizza and Wings

James Daw, the Reporter who built the story did a good job of covering the situation with  3for1 Pizza and Wings, as well as noting the challenges that any franchisee might have if they did not do their research throughly.
"Ontario courts sided with would-be franchisee Jamshed Ali and ordered companies linked to 3 for 1 Pizza to pay him $85,000"
- said reporter Daw

Daw explains
"Franchise chains have been the object of many lawsuits over the years, and the Ontario Legislature had hoped to curb the number of nasty disputes by passing  disclosure and fair-dealing legislation the Arthur Wishart Act (Franchise Disclosure) 2000. The Act and accompanying regulations came into effect Jan. 31, 2001. The law requires franchisors to supply a package of contracts and related information before a prospective franchisee signs or pays anything.

 Franchisors must allow someone at least 14 days to, among other things, review audited financial statements, read about the background of the franchisor and  outstanding suits, and contact franchisees listed in the documents for their comments. So onerous is the penalty for failing to provide this information a full refund of money plus compensation for the prospective franchisee's related losses all franchisors were expected to fall into line.

 But many would-be franchisees are unaware of their rights. No government or industry body was assigned to review the disclosure documents or license salespersons the way the Alberta Securities Commission did before June, 1995. Nor are there fines or jail terms prescribed. The only way for a dissatisfied franchisee or prospective franchisee to seek compensation is to go to court at great expense and satisfy a judge that proper disclosure was not provided."

"The first time a judge applied the Wishart Act was in late February [2003], ordering Solhi, 3 for 1 and two companies directed by Bagherzadeh to pay $115,000 to  Karamjit Gill, Mamta Patel and their company, MAA Diners Inc.  The award covered the price of the franchise, plus $12,500 for the women's losses from setting up and operating for a few weeks a Mississauga store the judge
 agreed was in a deplorable state when they took possession. Solhi and the companies claimed they met requirements for disclosure. But Justice Gertrude Speigel of the Ontario Superior Court of Justice rejected their explanation that no copies of the disclosure materials were made because of "sloppy paperwork."  "In my opinion, this submission must fail," the judge wrote. The judge said it was also not enough that a lengthy agreement signed by the women included an acknowledgement that they had been afforded the opportunity to receive the disclosure documents in time."
2003 Oct 7th
"3 for 1 Pizza ordered to refund $58,500 deposit"

Reporter James Daw continues his investigation of 3 for 1 Pizza.
Judge say 3 for 1 Pizza used a fraudulent scheme to acquire $58,000 from a couple.

This couple had paid a deposit on a franchise, but not received one.