The Rise of Franchising

Because he felt that "it might be fun to operate a restaurant," a Californian named Al Lapin Jr. eight years ago quit a job in television and opened a Burbank restaurant that specialized in pancakes. Lapin's venture has been good for profits as well as pleasure. The single place has expanded into 152 pancake houses in 26 states, all under Lapin's International Industries, Inc., which last year grossed $30 million.

Entrepreneur Lapin, 38, is on the way to becoming a millionaire, thanks mostly to franchising, one of the fastest-growing facets of U.S. business. Franchisers build national chains dealing in everything from popcorn to part-time help by licensing others to invest in and operate stores or offices; the franchiser makes money from the license and by selling supplies, techniques or recipes as well as nationally advertised signs, slogans and decor. Such operations now do a combined annual business of $25 billion, are growing 10% yearly.

As one measure of their success, Boston College recently opened a permanent Center for the Study of Franchise Distribution. It is being underwritten by 200 firms, including Lapin's Pancake Houses, Hertz Rent-A-Car, Carvel ice cream, Mister Donut of America, Inc., Western Auto, Midas Mufflers and Chicago's A to Z Rental, which rents everything for the home from axes to zaxes (a special cutter for roofing tiles).

Melding Big & Little. Franchising has grown, its backers say, because it nicely melds the know-how of big businessmen with the drive and ambition of little businessmen. Harry Winokur, board chairman of both Mister Donut and the new Boston College center, moved from little to big through franchising. Winokur opened one Donut shop, slowly added six more. "I wanted to expand," he says, "and I didn't have enough money." Winokur decided to license other businessmen to run his shops, now oversees 230 of them, with 45 more about to open. Big Sheraton Hotels chose franchising as a way to broaden the chain's image and get better use out of its vast Teletype reservation system. Of 120 Sheraton hotels and motels, 47 are now franchised.

Sheraton prefers experienced men in its operation, but other companies require only people with a yen to be in business for themselves--plus a little bit of capital. Midas Mufflers' operators include two former rabbis and a retired sea captain, while Chicken Delight restaurants have been opened by a bank teller, a beautician and a schoolteacher. Such entrepreneurs put up $6,000 on the average, but the price can vary widely. For $2,500, a would-be businessman can now open a shop selling foot-long meatballs at 90-c-. Car-matic auto-washing stations go for $14,800, while Lapin's pancake restaurants require a $40,000 investment.

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