Foodservice's theory of evolution: survival of the fittest

Nation's Restaurant News, Jan, 1998 by Robin Lee Allen

Although franchising has paid off hadsomely for untold numbers of chicken, hamburger, pizza and sandwich purveyors, foodservice operators were some-what slow to seize its benefits.

Stan Luxenberg, in his book "Roadside Empires: How the Chains Franchised America," credits sewing machine-manufacturer I.M. Singer & Co. with creating the country's first franchise system in the early 1850s. In reality, what the New York-based company created was a network of dealers. Singer established a plan whereby salesmen across the country paid a fee for the right to sell sewing machines in designated territories. Not only did the salesmen pay for their territory, but also they paid $60 for machines, which they would then sell for $125.

Singer's intent was to distribute its product more widely, and while the method proved successful in making the sewing machine a more common household appliance, it did not make Singer money. The structure of the system profited dealers more than the parent company. By 1856 Singer began repurchasing the rights to its territories.

"Though the Singer scheme failed, it did break new ground," Luxenberg wrote in his 1985 book. "In attempting to solve its distribution problems, the company had established a primitive franchise system, probably the first used by American business and the ancestor of the elaborate networks employed by today's hamburger and motel chains."

Car manufacturers were next to adopt the dealer method of distributing their goods in the late 1890s. Soon after gas station operators caught on. Meanwhile, foodservice operators would not capitalize on franchising for almost another 30 years.

Foodservice enters franchising fray

The first foodservice operator to embrace franchising was Howard Dearing Johnson, a debt-plagued former cigar salesman who stumbled on redemption when he took over a failing drugstore in Quincy, Mass., in 1925.

Upon acquiring the store, Johnson set about reviving its soda fountain sales by developing a rich chocolate syrup and upgrading the ice cream. Soon crowds were flocking for his proprietary butterfatladen 28 flavors.

But Johnson's fiscal woes did not immediately subside, and he found himself borrowing money to extend his menu line and to open new units. With a couple thousand dollars from one friend he hired a cook and added sandwiches, sirloins and booths to his operation. Another $500 loan allowed him to open a second ice-cream store on a beach in Wollaston, Mass., in 1927. In 1928 he opened a third store in Nantasket Beach, Mass.

The two beach stores each performed fabulously, pulling in $30,000 and $50,000, respectively, within months of their openings. Despite his success, however, Johnson -- known to have a lax attitude toward his creditors -- still had a hole in his pocket. Although he wanted to open more stores, his lingering debt and the gathering Depression scuttled his plans. Then Reginald Sprague entered the picture.

Sprague had offered to rent Johnson space for another summer ice-cream stand when Johnson instead suggested that the partnership could be more fruitful if Sprague ran the restaurant himself. For a fee Sprague received the right to use the Howard Johnson's name, product and operations blueprint. A franchise chain was born.