What Is a Franchise?

How franchising works as a partnership in which a local owner runs a business under a brand's name and system, and why it has become a major way businesses grow.

A franchise lets a local owner run a business using an established brand, products and systems.

The two parties

Franchisor: the brand owner, like McDonald’s or Domino’s.
Franchisee: the local owner who invests money and runs the outlet.

What the franchisee gets

The brand name and reputation.
A proven business system: recipes, processes, store design.
Training and support.
Supplies and marketing.

What the franchisor gets

Fees and royalties.
Rapid expansion without investing its own capital in every outlet.
Motivated local owners.

Types

Product distribution: dealers selling a brand’s products, like car dealerships.
Business format: the full system, like fast-food outlets or salons.

Scale

Franchising is common in food, retail, education, fitness, beauty and services.

The local owner

A businesswoman in Nagpur opens a branded coffee outlet. She owns and runs it, but uses the brand's name, menu, training and suppliers.

Thinking all branded outlets are owned by the brand

Many are owned by local franchisees.

Key takeaways

A franchise lets local owners use a brand's name and system.
Franchisors gain fees and expansion; franchisees gain a proven model.
Business-format franchises provide full systems.
Franchising is common in food, retail, education and services.