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The franchisor helps the franchisee to get the business up and running. The franchisor contributes his reputation, experience, marketing strategy, national and international communications and know-how. This pooling of resources enables franchisees to get up and running quickly, and to benefit from a proven business model that is often profitable from the outset, thanks to the experience of other franchises.
In return, the franchisee must bring the brand's concept to life locally, in line with the franchisor's business model. To use the brand, the franchisee pays part of his income in the form of royalties, which can represent several tens of percent of sales, and sometimes rent if he does not own the land. They must also pay an entry fee to become a franchisee, and make a personal contribution that is not financed by a bank. In addition to these costs, the franchisee must comply with the franchisor's guidelines, which can limit his or her flexibility.
Despite the high initial costs for the franchisee, this model is advantageous for both parties. It ensures recurring revenues and requires little initial capital for the franchisor, while offering the franchisee a guarantee of success without the need for extensive prior knowledge. This model has proven its effectiveness, enabling businesses to grow rapidly while maintaining uniformity of quality and service.
Discover our thematic list on franchising
For potential franchisor shareholders, it's important to know that you're investing as much in a property portfolio, brand and logistics network as in a chain of restaurants, car dealerships or hotels. You also benefit from recurring revenues, greater visibility and a business model that's light on assets and capital expenditure.
Three examples of franchise models
McDonald's: A successful franchise model
McDonald's Corporation, the world's leading fast-food chain, saw its sales exceed $23 billion in 2022, with 40,200 restaurants in over 100 countries (61% of which are franchised). Headquartered in Chicago, the company was founded by Ray Kroc in 1955 after acquiring the rights to a chain of restaurants operated by Richard and Maurice McDonald.
In 1953, the McDonald brothers began franchising their restaurant. Neil Fox was the first franchisee, followed by a second restaurant in Phoenix, Arizona, which introduced the golden arches design. The third restaurant, in Downey, California, is the oldest still in operation. Ray Kroc, a milkshake machine salesman, discovered the McDonald brothers' restaurant in 1954. Impressed by their efficiency and popularity, he proposed franchising the system. In 1955, Kroc opened today's first McDonald's in Des Plaines, Illinois. This restaurant is often considered the company's official starting point.
McDonald's success is largely due to its franchise model. The majority of restaurants (61%) are operated by franchisees, while a smaller proportion are managed directly by the company. McDonald's revenues come mainly from land rental, royalties and fees paid by franchisees, and sales in company-operated restaurants. Ray Kroc established strict specifications for franchisees, guaranteeing high quality and uniformity in all restaurants. This model has enabled McDonald's to grow rapidly and maintain strong profitability.
McDonald's Corporation is an emblematic example of success in the fast-food sector. Its franchising model, combined with a diversified product offering and global presence, has enabled the company to dominate the market. With over 40,000 restaurants worldwide, McDonald's continues to innovate and adapt to market trends to maintain its leadership position, but faces increasing competition. The company's valuation has returned to acceptable levels, and is currently paying 15.2x EV/EBITDA for an industry-record operating margin of 44.9% in 2023.
Marriott International: A world leader in hotels
Marriott International is a leading hotel company based in Bethesda, Maryland, USA. Founded in 1927 by J. Willard and Alice Marriott, the company has been run by the Marriott family for over 90 years. Over the decades, Marriott has become the world's leading hotel chain, operating 8,785 hotels and residences, representing 1,597,380 rooms by the end of 2023.
Marriott International specializes in hotel operations, with sales generated mainly in the United States and Canada (79.9%), and the remainder internationally (20.1%). The Group operates under a mixed model comprising franchised hotels (6,563), hotels under management contracts (2,046), owned and leased hotels (50), and residences (113).
The hotel chain comprises some thirty brands covering all hotel segments, from luxury to economy. Notable brands include: The Ritz-Carlton, JW Marriott, EDITION, Autograph Collection, Courtyard by Marriott, Moxy Hotels, Marriott Hotels.
Marriott International began in 1927 as a fast-food franchise under the name Hot Shoppes. In 1957, the company opened its first hotel in Arlington, Virginia, marking its entry into the hotel industry. Since then, Marriott has made a number of strategic acquisitions, including The Ritz-Carlton in 1995, Renaissance Hotel Group in 1997, Delta Hotels and Resorts in 2015, and Starwood Hotels and Resorts in 2016.
Marriott's success is largely based on its franchise model. This model enables rapid expansion and a global presence. By 2023, Marriott had 6,563 franchised hotels, representing 994,354 rooms. This franchising system, combined with strategic acquisitions and the launch of new brands, has enabled Marriott to become an undisputed leader in the global hotel industry.
Today, the hotel chain is a hospitality giant, recognized for the diversity and quality of its brands, as well as for its efficient business model. With a presence in 127 countries and solid financial management, Marriott continues to set the standards for the global hotel industry.
Games Workshop: Specialist in miniature games
Games Workshop Group is a British company specializing in the design, manufacture and sale of miniatures and tabletop miniature games. Founded in 1975, the company has become a major player in the field of fantasy miniature games, thanks in particular to its famous Warhammer and Warhammer 40,000 universes.
Games Workshop creates miniatures, sets, artwork and fiction for tabletop miniature games. Its flagship products include the Warhammer 40,000 and Warhammer Age of Sigmar universes. The company sells its products via a multi-channel network comprising its own retail stores, independent retailers and worldwide online stores.
In the 1980s, Games Workshop published a variety of wargames, role-playing games and board games. Since the 1990s, however, the company has refocused on its Warhammer and Warhammer 40,000 ranges. It also publishes games based on popular works such as The Lord of the Rings.
Games Workshop's business model is based on the sale of miniatures and related products, divided between three sales channels: independent retailers, retail stores and online sales. Commercial sales to independent retailers account for 56% of core revenues, followed by retail and online sales. Manufacturing is centralized in the UK, mainly in Nottingham, while overseas markets generate three-quarters of sales. North America is the main revenue driver, followed by Europe and the UK.
Games Workshop is counting on international expansion, particularly in Asia and South America, to drive future growth. The company is also investing in fan engagement via social media and price adjustments to attract new customers. The Warhammer community website has seen a significant increase in monthly visits, indicating growing interest in the company's products.
Games Workshop licenses the development of video games and other products using its intellectual property. A potential deal with Amazon to develop films and TV shows could offer a significant boost in the future.
The company continually invests in molding tools and painting machines to maintain product quality. Capital investment amounted to £14.6 million last year. Games Workshop's strategy is focused on high-quality products and long-term profitability.
It has established itself as a world leader in tabletop miniature games thanks to a well-defined strategy and a strong brand image. With continued expansion into international markets and investment in fan engagement, the company is well placed to maintain long-term growth and profitability.
