Drivers of Franchising Chain Performance: The Role of Franchising Experience, Public Firm Status, and Marketing Support
Disciplines
Hospitality Administration and Management
Abstract (300 words maximum)
Franchising is an important business model, with an estimated 806,270 franchise outlets in 2024, employing approximately 8.9 million people in the United States. It is especially prominent in the restaurant industry, where 318,000 franchised restaurant outlets operate across the country. Research indicates that a higher degree of franchising, measured as the proportion of franchised units to total units, correlates positively with financial performance, meaning more franchising generally leads to better firm profitability (Madanoglu et al., 2011). However, limited studies explore factors influencing chain-level success. This study addresses that gap by examining how franchising experience, public firm status, and local marketing support impact the financial performance of franchising restaurant firms.
By integrating Agency Theory and the Resource-Based View (RBV), this study investigates these relationships using a sample of 73 U.S. restaurant franchising chains provided by FRANDATA. The dataset spans 2016–2019, comprising 274 firm-year observations. Financial performance was measured as gross margin (gross profit/total sales). The three predictor variables were: franchising experience, public or private firm status, and local marketing support. The study controls for chain-level characteristics such as royalty rate, franchising fees, number of states with outlet locations, startup investment, and franchising proportion.
Findings reveal that franchising experience positively impacts financial performance. However, public firm status negatively affects financial performance, as publicly traded firms tend to have lower profitability or gross margins. Chains that offer local marketing support have a higher gross margin. Among control variables, chains with higher royalty rates and franchise fees achieve higher financial performance.
By identifying key drivers of franchising success, this study enhances understanding of franchising dynamics. It offers actionable insights for franchising executives, highlighting how experience with franchising, public status, and local marketing support influence profitability, thereby aiding in optimizing growth and performance strategies for restaurant franchise chains.
Academic department under which the project should be listed
CCOB - Management, Entrepreneurship & Hospitality
Primary Investigator (PI) Name
Melih Madanoglu
Drivers of Franchising Chain Performance: The Role of Franchising Experience, Public Firm Status, and Marketing Support
Franchising is an important business model, with an estimated 806,270 franchise outlets in 2024, employing approximately 8.9 million people in the United States. It is especially prominent in the restaurant industry, where 318,000 franchised restaurant outlets operate across the country. Research indicates that a higher degree of franchising, measured as the proportion of franchised units to total units, correlates positively with financial performance, meaning more franchising generally leads to better firm profitability (Madanoglu et al., 2011). However, limited studies explore factors influencing chain-level success. This study addresses that gap by examining how franchising experience, public firm status, and local marketing support impact the financial performance of franchising restaurant firms.
By integrating Agency Theory and the Resource-Based View (RBV), this study investigates these relationships using a sample of 73 U.S. restaurant franchising chains provided by FRANDATA. The dataset spans 2016–2019, comprising 274 firm-year observations. Financial performance was measured as gross margin (gross profit/total sales). The three predictor variables were: franchising experience, public or private firm status, and local marketing support. The study controls for chain-level characteristics such as royalty rate, franchising fees, number of states with outlet locations, startup investment, and franchising proportion.
Findings reveal that franchising experience positively impacts financial performance. However, public firm status negatively affects financial performance, as publicly traded firms tend to have lower profitability or gross margins. Chains that offer local marketing support have a higher gross margin. Among control variables, chains with higher royalty rates and franchise fees achieve higher financial performance.
By identifying key drivers of franchising success, this study enhances understanding of franchising dynamics. It offers actionable insights for franchising executives, highlighting how experience with franchising, public status, and local marketing support influence profitability, thereby aiding in optimizing growth and performance strategies for restaurant franchise chains.