We frequently find questions on social media about how franchising started. Many people first bring up McDonald’s and even reference “The Founder”. The founder in IMDB’s words describes it as “The story of Ray Kroc, a salesman who turned two brothers’ innovative fast food eatery, McDonald’s, into the biggest restaurant business in the world, with a combination of ambition, persistence, and ruthlessness.” This brings us to the question of what the evolution of franchising looks like.
While Ray Kroc had a profound impact on modern-day franchising, it’s not where it started. Franchising, in fact, has evolved over centuries, with key milestones shaping its modern form. Here’s a detailed timeline of the evolution of franchising:
Medieval Origins (9th – 15th Century) of Franchising
The roots of franchising date back to the Middle Ages when European lords granted rights to serfs or vassals to conduct business under their protection. In return, these individuals paid taxes or performed services, a precursor to the modern franchising system where individuals pay to operate under an established business. This may be closer to organized crime than franchising. However, it is a seed planted that would pollinate other business arrangements as the holistic ideas of franchising form.
18th Century: Beer Brewing in Germany
In the 18th century, German brewers began using a system similar to franchising. Independent tavern owners were granted the right to brew and sell beer under specific brand names, marking one of the earliest examples of product distribution franchising. In many ways, this arrangement underpins product expansion plans for soda companies in the early 1900s.
1851: Isaac Singer and the Sewing Machine
One of the first modern examples of franchising began when Isaac Singer, inventor of the Singer Sewing Machine, started selling franchises for his sewing machines. To expand distribution and sales, Singer created a system where local business people could sell and service the machines, leading to a nationwide network. This marked the beginning of product franchising in the U.S.
1902: Coca-Cola Enters the Franchise Arena
Coca-Cola adopted a franchising model by granting independent bottlers the exclusive rights to produce and distribute its soda. This model enabled rapid growth and allowed local businesses to benefit from the strength of a nationally recognized brand. It became a pioneering example of beverage franchising.
1920s: Automotive Franchising Emerges
In the early 20th century, the automobile industry saw rapid expansion through franchising. Manufacturers like General Motors and Ford allowed independent dealers to sell cars. These dealership agreements established one of the most recognizable franchise models, which remains a key part of the industry today.
1930s-1940s: Franchising in Hospitality and Services
The hospitality industry entered franchising with the launch of companies like A&W Restaurants (1921) and Howard Johnson (1935). This period marked the rise of franchising in restaurants and hotels, laying the groundwork for future fast-food franchising. Howard Johnson, in particular, expanded its roadside restaurant and motel chain through franchising, creating a recognizable brand for travelers.
1950s: Fast Food Franchising Boom
McDonald’s (1955), Burger King (1954), and KFC (1952) became pioneers in fast-food franchising. Ray Kroc, McDonald’s founder, played a critical role in shaping modern fast-food franchising by turning McDonald’s into a global brand using this model. This era marked the explosive growth of fast-food franchising, where standardized processes and brand consistency became the cornerstones of success. We love this article from the History Channel about McDonald’s “Speedee Service System”
1970s: Legal Regulations on Franchising
An era that is often described as the Wild West of franchising brought the attention of The U.S. Federal Trade Commission (FTC), which introduced regulations on franchising to protect franchisees from deceptive practices. In 1979, the Franchise Rule was enacted, requiring franchisors to provide potential franchisees with detailed disclosure documents. This ensured transparency about the costs, risks, and terms of franchise agreements.
1980s-1990s: Global Expansion of Franchising
Franchising became a global business model during the 1980s and 1990s. Fast food brands like McDonald’s, Subway, and Pizza Hut expanded into international markets, using the franchise model to enter new territories with local partners. Non-food industries, such as retail and services (RE/MAX, Century 21), also began to expand through franchising globally during this time.
2000s: Technological Integration and Diversification
The early 2000s saw the rise of technology-driven franchises. Franchising expanded into non-traditional sectors like fitness, logistics, education, and home services. E-commerce and technological innovations allowed franchises to better support franchisees, enabling more efficient operations and marketing efforts.
2010s: Growth of Multi-Unit Franchising
Many franchisees started to operate multiple locations, becoming “multi-unit” franchise owners. This trend allowed franchisees to build larger portfolios of franchise locations (think Planet Fitness MU Companies), sometimes even across different brands. This increased the sophistication in the franchise industry, setting the groundwork for the private equity (PE) era.
2020s: Post-Pandemic Adaptation and Digital Transformation
The COVID-19 pandemic forced many franchises to adapt by focusing on delivery services, digital marketing, and online sales. Brands like Domino’s Pizza, which had strong digital infrastructures, thrived, while others quickly shifted to contactless service models. Emerging franchise concepts in fields like health and wellness, education tech, and virtual services grew in popularity due to changing consumer demands during and after the pandemic.
Franchising today continues to evolve, encompassing diverse industries beyond its original sectors, with international growth and digital innovation driving the future. The evolution of franchising will continue to change and we are excited to see where it heads.
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