A business model in which a franchisor licenses its brand and operating system to franchisees, who put up their own capital to open and run individual outlets. The model began spreading across America in the 1950s. There are now close to 850,000 franchise establishments in the country, run by around 250,000 owners, employing some 9m people and generating about 3% of GDP. As many as one in eight American businesses with employees is part of a franchise. The International Franchise Association (IFA) is the industry's lobbying group, run by Matt Haller.
Franchising spans fast food (McDonald's, Dunkin' Donuts, Taco Bell), hotels (most Marriott outlets), shipping (the UPS Store), and increasingly boutique fitness, home services and child care—the last in part because private-equity investors have become enthusiastic franchisors. Around 95% of McDonald's 14,000 American outlets are operated by franchisees, and the chain has plausibly created more millionaires than any firm in history. Around two-thirds of American motels are owned by Indian-Americans, many descended from Gujaratis who bought Super 8 and Travelodge franchises in the 1980s.
Any business selling a franchise in America must produce a Franchise Disclosure Document (FDD), filed in several state registries. Ongoing royalties are usually paid as a share of sales—5-7% for food service, 10-12% for beauty and fitness—plus a marketing fee. Initial fees per outlet are typically tens of thousands of dollars, and total opening costs run from $300,000-800,000 for a fitness studio to over $1m for a restaurant. Survival rates differ from independent businesses only in the first year or two.
Franchises blur the line between firm and open market, as Paul Rubin observed in a 1978 paper. The model works best where an army of physically dispersed employees is required and local knowledge matters. Critics including Brian Callaci of the Open Markets Institute argue franchisors exercise so much control that franchisees are employees in disguise, squeezing low-wage workers. A 2018 paper by Alan Krueger documented "no-poach" clauses restricting hiring across outlets in the same chain; the practice was largely abandoned after state investigations, and research found that scrapping no-poach clauses raised affected workers' wages by 4-6%. A 2015 Obama-era "joint-employer rule" making franchisors jointly liable for franchisees' workers was narrowed by Trump in 2020, briefly contested under Biden, and formally reinstated by Trump in 2026.
Greg Flynn, who runs more than 3,000 outlets across seven brands in three countries, is reportedly worth over $1bn—probably the world's first franchisee billionaire. Originally a Stanford MBA, he bought eight Applebee's restaurants in Washington state in the late 1990s. The IFA inducted him into its Hall of Fame in February 2026—an accolade once reserved for franchisors such as Ray Kroc of McDonald's or Colonel Harland Sanders of KFC.
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