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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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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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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What I was thinking was: the McD’s supply chain has a small set of discrete items that change rarely. Target has a lot of inventory, and what they carry changes constantly. So they need tighter coupling. But the French grocery stores blow that out of the water.
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If it’s cap structure, there must be something about variability of returns. But hotels are very cyclical, and fast food much less so.
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