Franchising and Franchisee Behavior: An Examination of Opinions, Personal Characteristics, and Motives of Canadian Franchisee Entrepreneurs

FRANCHISING AND FRANCHISEE BEHAVIOR: AN EXAMINATION OF OPINIONS, PERSONAL CHARACTERISTICS, AND MOTIVES OF CANADIAN FRANCHISEE ENTERPRENEURS Over the past few years, many of the new enterprises that have been emerging in Canada are franchises. A wide variety of products and services are now available through franchises--from milk and prescription drugs, to real estate, dental, and hotel services. Franchising has become a popular business alternative due to its favorable reputation of being a proven business format for entrepreneurs. Statistics show that over one-third of all retail sales in Canada are generated from franchising, and these figures are rapidly growing (Franchising Annual 1987). In 1987, Canada's 1,700 franchisees and 42,000 franchises recorded sales of about $45 billion which amounted to approximately 45 percent of Canadian retail sales. Almost 35 percent of Canadian businesses are controlled by Americans, either by means of area franchises such as McDonald's restaurants of Canada Ltd., or through unit-by-unit franchises directly from headquarters in the United States (Knight 1986). Likewise, Canadian franchises own more than 2,000 units in the United States and elsewhere. A recent survey by the Retail Council of Canada showed that 79 percent of franchises respondents felt they had made the right decision in purchasing a franchise. Fifty-five percent indicated that they would make that same decision again. RESEARCH OBJECTIVE The purpose of this study is to examinee and analyze the behavior of Canadian franchisees. In doing so, we first explore the perceived importance of success factors in franchising, and the degree to which subjects manifest them. Second, we examine personal characteristics of franchisees, and their attitudes and opinions toward franchising. Third, we examine the reasons behind choosing to join franchise operations (Metro Toronto Business Journal 1986), rather than starting an independent business. Fourth, we determine which form of business is regarded as being more entrepreneural--franchising or operating an independent business. FRANCHISING DEFINED It appears that franchising has no set definition, as it holds many differet researchers. Bain (1986) defines a franchise as a contractual privilege granted by an individual or company (owner) to another individual or company. Norback and Norback (1982) view franchising as a license from the owner (franchisor) of a trade or service mark permitting the user (franchisee) to market a product or service under that name in accordance with the franchisor's system. Justis and Judd (1986) suggest that franchising is a distribution method which is being used by businesses for growth and expansion. For Ayling (1987), franchising is a method of raising capital by and for the franchisor. The contractual privileges and licensing distribution of franchising is unique to each industry or organization. Often franchisers provide franchisees with a slightly different package of goods and permit each franchisee to employ a different method of operation (Mackenzie 1985). The franchising arrangements very from nonexclusive distributorship or sublicense agreements, to "an arrangement under which one party grants another the right to operate a business in accordance with prescribed operating methods and procedures controlled by the grantor" (Franchising--An Information Source 1979). According to the Canadian Federal Department of Industry, Trade and Commerce (1979), franchisors allow franchisees to use their knowledge, expertise, trade marks, and other distinguishing features or names. When a Canadian franchisor enters into an agreement with a Canadian franchisee, the latter obtains an exclusive right, within a certain locality, to operate the franchised business for five years with an option to renew the agreement for another five years. In addition, the Canadian franchise package states that the option provided to the franchisee by the franchisor cannot be terminated within that period. …