Fast Food Nation

They receive half of the franchise fee paid by new

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Unformatted text preview: led. The failure rate of new independent businesses during the same period was 6.2 percent lower. According to another study, three-quarters of the American companies that started selling franchises in 1983 had gone out of business by 1993. “In short,” Bates argues, “the franchise route to self-employment is associated with higher business failure rates and lower profits than independent business ownership.” In recent years conflicts between franchisees and franchisors have become much more common. As the American market for fast food grows more saturated, restaurants belonging to the same chain are frequently being put closer to one another. Franchisees call the practice “encroachment” and angrily oppose it. Their sales go down when another outlet of the same chain opens nearby, drawing away customers. Most franchisors, on the other hand, earn the bulk of their profits from royalties based on total sales — and more restaurants usually means more sales. In 1978 Congress passed the first federal legislation to regulate franchising. At the time, a few chains were operated much...
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This note was uploaded on 02/25/2014 for the course MGMT 120 taught by Professor Litt during the Spring '08 term at UCLA.

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