When Does Franchising Help Restaurant Chain Performance?

Abstract

A study of ninety-four food-service chains revealed four distinct groups relating to strategic use or avoidance of franchising. The four groups are as follows: manager-scarce franchisors, money-scarce franchisors, franchising minimizers, and seasoned veterans. The use of franchising by the manager-scarce and money-scarce franchisors supports the concept that youthful companies take up franchising to gain access to resources in an economical fashion. Franchising minimizers avoided the potential tangles of franchise-related agency, most likely because they wanted to maintain control of their strong brand names and relatively complex operating systems. The seasoned veterans had been in business the longest but were driven by neither agency concerns nor resource scarcity. They made modest use of franchising; some for many years and some only recently. While their growth was not speedy, their financial performance ranked with franchise minimizers. This group also enjoyed long tenure of managers, meaning that its members did not face scarcity of human resources.

Does franchising help restaurant firm value?

“…Combs et al (2004), and Ketchen et al (2006) examined the firm performance of selected restaurant franchising companies. They categorized franchisors into three groups (agency franchisors, agency franchise minimizers, and resource-scarce franchisors) and four groups (franchising minimizers, manager-scarce franchisors, money-scarce franchisors, and seasoned veterans), respectively, by conducting a cluster analysis.…”

Luxury marketing: The influences of psychological and demographic characteristics on attitudes toward luxury restaurants

“…Restaurant industry sales have increased steadily from $42.8 billion to $536.7 billion over the past thirty years and are expected to continue increasing (Ketchen et al, 2006;Kozup et al, 2003;National Restaurant Association, 2007). Applying a statistical model to census data about demographic characteristics of American households, Ketchen et al (2006) found that per capita spending at full-service restaurants could increase by approximately 18% between 2000 and 2020, compared to approximately 6% for fast-food restaurants. They suggested that the increase in customer spending at full-service restaurants is attributable to higher income customers who tend to spend more money on full-service dining than on fast-food dining, although both types of restaurants offer a variety of dining experiences.…”

Does franchising pay? Evidence from the restaurant industry

“…Two related studies of franchising restaurant firms considered strategic groups and found that the franchising effect is non-linear (Combs, Ketchen, & Hoover, 2004;Ketchen, Combs, & Upson, 2006). Combs, Ketchen, et al (2004) identified three strategic groups among the 65 franchising firms that they examined, and Ketchen et al (2006) identified four strategic groups among 94 franchising firms.…”