Promoting Friendly Competition Among Franchisees and Corporate Stores

Everyone loves to compete. It is an integral part of our nature. From little league fields to corporate boardrooms to Las Vegas casinos, everyone wants to win. Franchise systems like to win too. Ideally, competition should push organizations to achieve more and do things thought to be impossible. But for franchise companies that run both corporate and franchised stores, how do they create an environment of friendly competition without showing favoritism or choosing one side to bet on?

The majority of today's major franchise organizations share a similar pedigree: they started with a founder's dream and a single store. For example, after starting a fledgling bookkeeping service in 1955, Henry and Richard Bloch opened the first H&R Block location and ran an advertisement for a $5 tax service. One year later, the brothers began offering franchises and by 1978, the company prepared more than one of every nine tax returns filed in the United States. Throughout their franchise growth, the company continued a steady development of corporate-owned stores. Today, H&R Block ranks among the top franchise systems in the number of corporate-owned units of any franchise system (7,840 according to their 2006 UFOC).

Beginning with similar entrepreneurial roots, Cecil Day founded Days Inn as 8 Days Inn in 1970, with one hotel located in Tybee Island, Ga. The chain, now owned by Wyndham Hotel Group, has nearly 1,900 locations worldwide.

According to FRANdata, a franchise industry research and analysis service, 54 percent of brands with more than 50 franchised units have at least one corporate store. In the restaurant sector that percentage is even greater. There are 51 restaurant (sit-down) concepts with 50 or more franchised units. Of those concepts, 82 percent have at least one corporate-owned unit.

These high percentages beg the question: Why do so many franchise systems choose to own corporate stores? The answer can be found in a myriad of opportunities that a corporate store can provide to a franchise-holding company. If the business model is economically sound, corporate stores can create a major source of income. They also serve as testing grounds for new products and promotions and can validate changes in the system. In addition, corporate stores provide strategic-systems-based knowledge of what processes and procedures can effectively maximize profit centers. The counterpoint to these advantages lies in the fact that operating corporate stores and a franchise program potentially pits the stores to compete against each other.