Chapter 4 Summary
Franchises have existed in America since the 1800s, when General Motors sold franchises to car dealers to expand its territory to increase sales. It was an ingenious plan in which people paid the company to sell its products. Other industries have used franchising over the years, but the fast food industry made it a business model for retail businesses all over America. McDonald’s mastered the franchise concept in several ways. Early on, the franchise fees for the company were less than a thousand dollars; McDonald’s made money through real estate. The company bought the land and leased it back to the franchisees, essentially serving as their landlord.
Auto parts stores, weight loss systems, and clothing retailers such as the Gap also saw the benefit of expanding their presence through franchises and changed the way American products are marketed. Storefronts became less individual and unique while becoming more recognizable and accessible. Over the years, though, franchising has become rife with failure and abuse. A much larger percentage of franchise businesses close within four or five years than that of nonfranchised businesses. Despite tougher federal regulations, owning a franchise is a risky business proposition. Franchisees have paid mandatory kickbacks to the company; been forced to buy more expensive, company-owned products; endured competing stores encroaching on their business territory, and more. Subway is by far the worst franchise in America, perpetrating myriad abuses on its franchisees. Even worse is that the federal Small Business Administration regularly loans money for fast food franchises; when these businesses fail, taxpayers foot the bill. The franchising company has already been paid and loses nothing.
Pueblo Springs, Colorado, is not as affluent...
(The entire section is 433 words.)