Multi-Unit Ownership in Franchising: Evidence from the Fast-Food Industry in Texas

We use data on all the new restaurants opened in Texas between 1980 and 1995 by seven of the largest nationally franchised fast-food chains to examine empirically the extent of multi-unit ownership in franchised chains and the way in which franchisors allocate the ownership of units among franchisees. We find that individual franchisees are much more likely to be assigned the ownership of a particular new unit the closer their existing units are geographically to the new unit. Further, given distance, franchisees are more likely to be allocated a new franchised unit if they already own units whose markets are contiguous and demographically similar to that of the new unit. Finally, contrary to implications from some explanations for company ownership, we find that franchisors use similar criteria when they decide to retain units under company ownership as when they choose among franchisees.