What determines whether a business is franchised or run by an operating company? I thought there was a correlation between unique SKU count and operator status, then I found out the French grocery business is heavily franchised. Economist friends: what gives?
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Replying to @ByrneHobart
I thought this was primarily capital structure rather than operational issues?
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Replying to @patio11
e.g. Chipotle isn’t franchised primarily because they had deep pockets relative early (McDonalds, which itself is franchise/operated) and because the payback period on a Chipotle build-out is ridiculous(ly short), so tapping franchisees as a source of capital never made sense.
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Replying to @patio11
Could be! In that case, it’s a historical argument: if the business grew when capital was hard to get: franchise. The first fast food chains used the interstate highway system as their platform, analogous to the Internet. It was a land-grab; they couldn’t fund growth internally.
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Replying to @ByrneHobart @patio11
I’ll have to read up and see if that’s true. With hotels, they’ve gotten more asset-light over time, but this could be because there’s so much institutional money in real estate now.
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it occurs to me that now that fast food is a proven business model, even if a new entrant doesn't have deep pockets, it can go to the mature money markets and say "here is how we print money" and get a loan for $1B do many fast food restaurants in 2019 franchise?
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