History of franchising

The origin of the term “franchising” dates back to the French word “franchise”, which in the Middle Ages indicated the granting of a privilege from a sovereign, with which both States and citizens could gain independence. Today franchising indicates a contract between an entrepreneur, called a "franchisor", who grants to another entrepreneur, the "franchisee", the right to exercise an activity involving services, the production of goods or the resale of products, by using the franchisor’s own trademark and insignia.

There are two conflicting theories about the origins of the association’s first partnership contracts, which in spirit would have given birth to what would later be known as franchising: for some, it all began in the United States with the “affiliated managers” organised by F: Woolworth; for Dolby, on the other hand, franchising was launched at the same time around 1929 on both sides of the Atlantic Ocean: in France and the United States.

In France, the owner of the Roubaix wool mill, Jean Prouvost, had made a young engineer within his staff, Philippe Bourguignon, responsible for launching the first large chain of stores specialising in the sale of knitted wool: “Laines du Pingouin” (Penguin Wools) had the objective of achieving rapid sale of the yarns produced at the factory which had just been built. A certain number of independent retailers were linked to the producer through a contract which guaranteed them exclusivity for the trademark, which was moreover launched and sustained by multiple advertising campaigns within a well-defined and clearly-partitioned territory. At the time this contract was not yet called a franchising contract, but its main features already embodied the characteristics and spirit of one. At the start of the Second World War in 1939, the Pingouin network relied on a good 350 franchisees while today, in France alone, there are more than 1,200 retail outlets.

The US auto industry at the start of the 1930s on the other hand found itself in conflict with the application of antitrust laws, which - among other restrictions - prohibited manufacturers from vertical integration with resellers. To get around this law, the CEO of General Motors asked the company’s lawyers to fine-tune a contract which linked car dealers with the parent company in a liberal manner. Thus the first American franchising contract was born.

This double origin of franchising carries weight in describing the system’s history. Two development paths had already been detected on both sides of the Atlantic. Though occurring at the same time, it was however American franchising which caused the rapid development of European (and particularly French) franchising starting from the 1970s.

The birth of Italian franchising took place on 18 September 1970, when a mass distribution company, la Gamma d.i., launched the first of 55 sales outlets directly managed by around a dozen affiliates in Fiorenzuola. Gamma d.i. offered its franchisees a series of services: inspection by its own staff; design and technical assistance for preparation of the store, guidelines for managerial and sales staff, commercial preparation of a sales outlet, assistance in the launch for opening and unveiling the outlet. In exchange, the prospective franchisee was required to have a selling surface area of at least 350m2, a licence for a storeunder the Law of One Price and capital of 25/30 million.

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European Franchise Federation

Confcommercio

World Franchising Council