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Small Business Resources > The History of Franchising

The History of Franchising

The Beginning of Franchising
Franchising is identified as the holding of a specific privilege or right. The concept had its earliest beginning way back in the middle ages.

During this timeframe, Church expansion was considered a type of franchising. Also, leaders granted certain privileges such as the right to run fairs and operate markets and ferries. The franchising concept continued as Kings designated rights to partake in such activities as beer brewing and the building of roads.

Franchising in the 1800's and 1900's
The type of franchising that most of us recognize began in the 1840's as German ale brewers designated rights to certain taverns to sell their ale. Subsequently, franchising made its way into the United States as peddlers marketed their wares between towns.

Additionally you could find licenses that were granted to the military giving them the right to sell items in their general stores in particular territories.

The first recognizable name associated with franchising is Albert Singer. In the early 1850's as he was looking for an efficient method of marketing his sewing machines across the United States, he began to grant others the right to sell his sewing machines.

Going forward into the late 1800's and early 1900's, franchising took on many other forms. As companies began to realize the significance of selling their products and services over larger geographical areas, they adapted the franchising practice as well. Many utility companies and auto manufacturers found success with the practice.

Also as transportation avenues increased, the more mobile Americans began to establish restaurant chains and franchises including such well-known outfits as Dunkin Donuts, Burger King, and McDonald's.

Current Franchising
Business format franchising, as we know franchising today, became common after World War II. As those who served in the war returned home with their want for a variety of products and services, franchising appeared to be the way to go. Going forward, the baby boomers began to direct the economy along this path and continue to do so currently.

However, franchising has not been without its issues. During the 1960's and 1970's, along with the quick growth of franchises, came some unsettling activities. Various businesses found themselves not only poorly funded but also lacking solid leadership. These adverse circumstances led to a number of bankruptcies.

Also, mixed in with the lucrative legitimate franchises were some companies portraying themselves as franchises, but in actuality were involved in fraudulent activities. Some people found themselves in a loss situation rather than the beneficial one that they thought they were investing in.

Franchise Regulations
In 1960, the International Franchise Association (IFA) was established in order to protect and promote the franchising industry. The IFA partners with Congress and the Federal Trade Commission (FTC) to streamline and update franchising regulations in order to ensure fairness within the industry.

The FTC developed the Uniform Offering Circular (UFOC) in the late 1970's making it necessary for franchisors to provide specified information to potential franchisees in order to ensure that the prospect receives all necessary information before investing. The document was later revised to the Franchise Disclosure Document (FDD) used today.

As the franchising industry continues to comprise a good portion of the business within the United States, it is expected that it will be necessary to review and update regulations regularly in order to promote healthy activity within the marketplace.

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