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 as Colorado Springs, but it is growing. A Little Caesar’s pizza chain there is owned by Dave Feamster, a former NHL player who suffered a career-ending back injury. Before he ever opened his doors or sold one pizza, Feamster owed the company $200,000. He has worked hard and his franchises are now a success, but things can quickly change in the fast food industry. Rival chains such as Papa John’s are always a threat to his business and require Feamster to continue improving his service and employees. He supports his employees as well as his community, creating and funding (and assistant coaching) a high school hockey team, which is comprised of boys who would never be exposed to hockey and which has experienced tremendous success. He takes his employees to a “success seminar,” which is inspiring but also quite mercenary in its self-promotion. Feamster is successful because he works hard and treats his team well.