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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Replying to @ByrneHobart @patio11
Chipotle was designed to grow quickly and exit, which favors central planning. McDonald’s was designed to create long term, predictable, free cash flow, which favors distributed decision making. Eventually all profits flow through to land owners anyway.
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Replying to @RobTerrin @patio11
Has anyone started an apparel retail franchise?
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that shades into MLM at the margins, e.g. LuLaRoe etc
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