The franchise model has been called the greatest business model ever devised. It’s created opportunities and allowed people who’ve wanted to own businesses do just that. But, how did it begin? How did franchising start?
Extraordinary explosive franchise growth did not occur until after the war was over. A number of forces came together after World War II that ultimately led to a franchising boom. The end of the war brought back hordes of returning G.I.s to civilian life looking for jobs and ready to start a family. Unlike pre-WWII, suburbs post-war were connected by the automobile. This changed the “very nature of American society,” including how citizens shopped for food and other goods and services
This, ideas from returning veterans, and capital provided by military separation pay and the GI bill led to huge demand for entrepreneurial opportunities. Franchising emerged as a powerhouse of opportunities post World War II.
Dairy Queen – 1940
The single biggest contributor to the tremendous growth of ice cream franchises was John Fremont McCullough. In 1938 he and his son developed the first soft-serve ice cream cone and gave it the name “Dairy Queen.” He convinced a loyal customer (Sherb Noble) to offer his new product in his Illinois ice cream store. When he did that, on the first day Noble’s store sold and dished out more than 1,600 servings of the new dessert within two hours. Noble and the McCulloughs went on to open the first Dairy Queen store in 1940.
Since 1940, the chain used a franchise system to expand its operations from 10 stores in 1941 to 100 by 1947, 1,446 in 1950, and 2,600 in 1955.
Harry Axene grew the Dairy Queen system. Axene went into business with McCullough and sold off large territories to “territory operators” (called “master franchisees” or “subfranchisors” in today’s terms) who in turn sold subfranchises to store owners to operate individual Dairy Queen stores.
Holiday Inn – 1951
Kemmons Wilson, a high school dropout created the Holiday Inn franchised chain of hotels. In the summer of 1951, Wilson, a successful home builder in Memphis, Tennessee, decided to take his family on a summer vacation to Washington, D.C. The Wilsons decided to drive so they could take tours on their way. In doing so they realized that they were unable to find suitable motel accommodations during their trip. So what Wilson decided to do was to begin building a chain of motels. He was a high school dropout, but he had become a millionaire building houses. By August, 1952, Wilson built his first Holiday Inn in Memphis. Then he decided to franchise his hotels, and 11 more opened in 1954, the first year he began to franchise. Then his hotel franchises took off. “At one point,” Wilson’s chain “was building a new inn every two and a half days and a new room every fifteen minutes.”
Kentucky Fried Chicken – 1952
KFC, also known as Kentucky Fried Chicken, is an American fast food restaurant chain headquartered in Louisville, Kentucky, that specializes in fried chicken. It is the world’s second-largest restaurant chain (as measured by sales) after McDonald’s, with 22,621 locations globally in 136 countries as of December 2018. The chain is a subsidiary of Yum! Brands, a restaurant company that also owns the Pizza Hut, Taco Bell, and WingStreet chains.
KFC was founded by Colonel Harland Sanders, an entrepreneur who began selling fried chicken from his roadside restaurant in Corbin, Kentucky, during the Great Depression. Sanders identified the potential of the restaurant franchising concept, and the first “Kentucky Fried Chicken” franchise opened in Utah in 1952. KFC popularized chicken in the fast food industry, diversifying the market by challenging the established dominance of the hamburger. By branding himself as “Colonel Sanders”, Harland became a prominent figure of American cultural history, and his image remains widely used in KFC advertising to this day.
Harland Sanders was born in 1890 and raised on a farm near Louisville, Kentucky). After leaving the family home at the age of 13, Sanders passed through several professions. In 1930, he took over a Shell gas station on US Route 25 just outside North Corbin, Kentucky. It was here that he first served to travelers the recipes that he had learned as a child: fried chicken and other dishes such as steaks and country ham. After four years Sanders purchased the larger gas station on the other side of the road. In 1937 he expanded his restaurant to 142 seats, and added a motel he purchased across the street.
Sanders identified the potential of the restaurant franchising concept, and the first “Kentucky Fried Chicken” franchise opened in Utah in 1952. Sanders’ restaurant flourished until 1955, when a new highway was built that bypassed his restaurant by seven miles, causing the Colonel to close.
In 1956, Sanders focused on the franchising route. He took to the road and traveled to restaurants in Indiana and Ohio, selling his Kentucky Fried Chicken concept. He convinced them to pay him a five percent royalty for using his proprietary recipes. He leased them cookers that would allow their restaurants to cook at high temperatures and sold his secret spices to the restaurants. He also sold them napkins, buckets, and supplies with his image and the Kentucky Fried Chicken logo on them.
By 1960, there were 200 KFC franchised outlets, by 1963, 600 outlets. In 1964, then 73 years old, Sanders sold the Kentucky Fried Chicken franchise for $2 million ($16.2 million today) to a partnership of Kentucky businessmen headed by John Y. Brown, Jr., a 29-year-old lawyer and future governor of Kentucky, and Jack C. Massey, a venture capitalist and entrepreneur. The contract included a lifetime salary for Sanders and the agreement that he would be the company’s quality controller and trademark. By the end of the decade, approximately 1,000. There are now nearly 23,000 locations worldwide in 118 countries.
Chicken Delight – 1952
Chicken Delight was a chain of restaurants offering eat in, take out, and delivery service with a menu featuring chicken, pizza, and ribs.
Al Tunick, the founder of the Chicken Delight franchise, started his first company in 1950. The company was in the business of wrecking plant machinery. In 1951, the company was about to dismantle a factory producing the quick-cooking devices for chicken, but the inventor of the cooker talked him into keeping the business open. Tunick opened a store in 1952 to encourage sales of his cooker by demonstrating the product it produced. The chicken and the store were a big hit, and Tunick started the Chicken Delight franchise
Founded in Illinois in 1952, the chain grew during the 1960s to over 1,000 locations It emphasized delivery and take-out services. By the late 1960s, however, Chicken Delight in the US was a troubled operation. While emerging chains like McDonald’s ensured that all outlets provided a product that met the franchisor’s strict standards, the quality-control of Chicken Delight outlets was lax. The company was thus fighting the battle of people who, having had a bad experience in one single outlet, generalized that to the whole chain, then told their friends to stay away.
Chicken Delight was simultaneously under increasing pressure from a fast-growing competitor, Kentucky Fried Chicken (KFC). Although Chicken Delight and KFC were founded in the same year, and Chicken Delight had initially grown far more quickly, KFC was beginning to enter and become popular in many markets. The competition became particularly strong when KFC added a new chicken item to their menu, termed “Extra-Crispy,” with a taste and texture similar to Chicken Delight’s product. Additionally, during the early 1970s legal actions resulted in a substantial reduction in the Chicken Delight chain.
Dunkin’ Donuts – 1955
In 1946, entrepreneur William Rosenberg, an eighth-grade dropout, founded a company that delivered meals and snacks to factory workers in the Boston area and called it Industrial Luncheon Services. While selling food to workers at factories and construction sites, Rosenberg noticed that the two most popular items he sold daily were coffee and doughnuts.
Convinced he could make more money focusing on just those two items, he closed Industrial Luncheon Services in 1948 and opened a coffee and doughnut shop in Quincy, Massachusetts, called the Open Kettle, which he renamed to Dunkin’ Donuts two years later. The restaurant was successful, and in 1955, to accelerate the growth of the business, Mr. Rosenberg began selling franchises to other people.
The brand quickly grew to over 100 locations by 1963. Today, Dunkin Donuts has over 12,000 franchise locations across the globe.
Pizza Hut – 1960
Dan and Frank Carney of Wichita, Kansas founded Pizza Hut in 1958 with a $600 loan from their mother. Why the name Pizza Hut? The brothers only had enough money for eight letters! The pizza parlor quickly began franchising in 1960 with the first franchise opening up in nearby Topeka. Pizza Hut now currently has over 18,000 outlets in operation worldwide!
Dave Thomas is best known as the founder of Wendy’s, but the celebrated entrepreneur actually got his start working with another franchise icon for a different brand. Thomas worked directly with KFC founder Harland Sanders at several Kentucky Fried Chicken locations in Fort Wayne, Indiana and Columbus, Ohio in the 1960s. He was credited with turning around the failing locations quickly and was rewarded with a 45 percent ownership stake in them – which he quickly sold back to Sanders for $1.5 million and used the money to open the first Wendy’s in downtown Columbus in 1969.
Wendy’s founder Dave Thomas believed that McDonald’s hamburgers were skimpy and decided he could improve the basic hamburger. In 1968, Thomas received $1.7 million as his share of the sale of four chicken stores by Hobby House Restaurants, for whom he was a manager. He invested most of it into a new chain of hamburger stands. By the end of 1972, he had nine outlets with annual sales of $1.8 million. By June 1975, he opened the 100th Wendy’s restaurant. Less than two years later, the number jumped to 1,000. In 1978 alone he opened 500 outlets. By 1999 there were well over 5,000 outlets worldwide. Thomas proved that there was plenty of room in the franchising world.
Gold’s Gym – 1971
The first Gold’s Gym opened in 1965 and was sold to an owner with a different last name in 1971. Joe Gold opened the first Gold’s Gym in August 1965, in Venice Beach, California, long before the modern-day health club existed. It was offered to a gym member, Ken Sprague, who purchased it in late 1971, who saved the gym and continues to own the franchise today.
Smoothie King – 1973
Smoothie King was founded as a solution to chronic allergies. Steve Kuhnau, the founder of the Smoothie King franchise, struggled with lactose intolerance, which left him unable to digest malts, shakes, floats, and other ice-cream based products. One day in his kitchen, he concocted a smoothie as an alternative to these drinks — and Smoothie King was born. In 1973, Kuhanu opened the first franchise location in Louisiana, and today they have over 1,000 locations across three continents.
Ben & Jerry’s – 1981
Ben & Jerry’s franchise started in a renovated gas station. In 1978, Ben Cohen and Jerry Greenfield began their entrepreneurial journey with a $5 completed correspondence course in ice-cream making from Penn State and a $12,000 investment in their back pocket. Their first ice cream shop was opened in a renovated gas station in Vermont and on their first anniversary as a business, they held the first-ever Free Cone Day for customers. They soon became more popular and opened their first franchised shop in 1981. In 41 years of business and counting, they have opened over 577 locations worldwide.
Sky Zone – 2004
Sky Zone franchise was originally created as a trampoline dodgeball park for professional athletes. Sky Zone, one of the largest trampoline park franchises in the United States, was originally founded in Las Vegas, Nevada in 2004 by Rick Platt, who intended the space to be used for trampoline dodgeball. The sport never took off, but skateboarders learned about the facility and wanted to bounce on the court. Soon after, Platt opened the facility to the public and charged $8 per person.
Two years later, his son, Jeff Platt, opened a second location in St. Louis, Missouri while he was still in college. His location became profitable within the first six weeks of opening.
By Steve Longo and Jim Notaris