What is a franchise? e.g. mcdonalds and Starbucks don’t own all their stores, some are franchises?!
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Starting a business is a big risk and there’s a ton to find and know and decide on. If you want to own your own but don’t want to go through the trial and error of developing a menu, building a supply chain, building brand recognition, setting up websites for recruiting,etc…etc….etc… You can buy in as a franchisee.
Corporate will provide you with access to various resources like their supply network, uniforms, menus, decor, branding that is widely known, sometimes access to things like HR resources, policies and procedures, bulk rates on equipment, all sorts of benefits a big organization has. In return, you agree to both pay them a cut of your profits and to conform to a variety of rules to ensure consistency across their brand.
It’s basically a starter kit for a small business, like a burger joint or coffee shop in your example. In return for the ease of use, you give up money and options.
Some franchisees become quite large and may open dozens of locations across a region and it’s quite common for brands to have more franchise locations than corporate owned ones, McDonald’s included.
McDonalds technically owns nearly all the real estate that franchise owners operate from. The franchisee pays rent to corporate McDonald’s plus a percentage of sales as a royalty and to pay for national advertising.
A franchise is basically buying your own copy of the big company. The benefit is that you get to buy into the brand recognition. A TV commercial for one McDonald’s is essentially a commercial for all McDonald’ses, and you didn’t have to personally directly pay for it. Everyone already knows what a McDonald’s is and whether or not they want to go there.
Compare that to opening your own restaurant, where you have to build all that brand recognition yourself. That’s a lot harder.
From McDonald’s [corporate] perspective, opening a new location is risky. It costs a lot of money and isn’t guaranteed to succeed. It’s also more hassle for them because they have to hire a manager and staff and that means you need a regional manager to manage the store managers, etc.
So, individuals can pay money to open a restaurant that is a McDonald’s. They own the location and they get the profit from it; but, they also take on the risk since they have to put forward most of the money, and they are responsible for managing it and/or finding employees to run it. The owner pays a fee to the McDonald’s corporation to “license” the McDonald’s brand. The corporate office may help with paying for things like signage and some supplies, it really depends on the terms of the contract between the franchisee and the corporate owner.
The franchisee gets the benefit of buying into a huge brand without doing the work and spending the money required to become a big brand. The corporate office gets a share of the profits from a location that they don’t have to spend a lot of money starting up and don’t have to worry about managing.
Again, depending greatly on the terms of the contract, the corporate office can exercise more or less control. They might be able to dictate recipes, what the menu looks like, what the signs look like, what the prices are…or maybe not, and the franchisee can make all those decisions; or, both have some control. The corporate office may provide more or less support – the franchisee may be responsible for buying new signs from the corporate office, or corporate may provide them for free. Corporate may negotiate contracts for supplies or the franchisee does. There’s a huge range that depends on what each party is looking to gain in the transaction.
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