Why do fast food companies usually franchise their restaurants instead of operating the locations themselves?

Question

Why do fast food companies usually franchise their restaurants instead of operating the locations themselves?

In: 101

Answer 1

Franchising ensures competent and highly-motivated local management. A top-down corporate model would mean appointing executives to run locations or clusters of locations. These executives may not know the local area very well, and there is less at stake for them. If an executive runs their restaurant poorly, the worst that can happen is that they get fired. If a franchisee runs their restaurant poorly, they can lose their initial investment of millions. On the flipside, franchisees stand to directly benefit from running a highly profitable restaurant. They collect all the money that doesn’t go to costs or franchise fees. An executive just earns their salary either way.