Saint Matilda
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In 1888, in Rochester, New York, a domestic servant opened a hair salon. Martha Matilda Harper had been sent into service at age 7 and stayed there for 25 years, and she arrived at her own shop with three things: $360 of savings, a hair tonic of her own invention, and hair that reached the floor, a photograph of which she hung on the front door as her advertisement. The salon worked. And in 1891 she made the decision that created an industry: rather than open more shops herself, she began installing other women in shops of their own, trained in her method, selling her tonic, trading under her name.
She chose the women deliberately. Servants, laundresses, the poor, women exactly like the one she had been, because the entire point of the machine was to convert women like her into owners. At its peak, the network ran to 500 salons. Franchising, the actual invention of it, was a ladder, built by a servant, for servants.
A century and a bit later, the ladder is most of the high street. Around 50,000 franchised businesses operate in Britain across some 900 brands, contributing an estimated £19bn a year and employing 700,000 people. The model sits in a strange legal middle that most of its occupants only understand once they are inside it: the franchisee owns the company, the debt, the lease, the payroll, the risk, and the seventy-hour weeks, while the franchisor owns the brand, the prices, the suppliers, the systems, and the contract. You can buy a McDonald's. You could buy a Vodafone until recently. And what you have bought, in every case, is a business in which almost every decision that determines whether you prosper is taken by somebody else.
The man who perfected the modern version understood this with total clarity. In 1956, Ray Kroc's finance chief Harry Sonneborn created Franchise Realty Corporation, and with it the engine that actually built McDonald's: buy cheap land on busy roads, lease it, then sublease it to the franchisee at up to a 40% markup, or 5% of the store's sales, whichever was greater, with the franchisee's deposit, sometimes as little as $950, used as the down payment on property McDonald's kept. Sonneborn liked to tell Wall Street that the company was in property, and the burgers were what the tenants did to pay the rent.
Kroc
John Love's definitive history of the company puts it flatly: the money machine was never the hamburgers. And notice what changed hands in the 65 years between the two inventions. Harper earned from the method, the training and the tonic, so she prospered only when her women did; the two of them were in the same business. Sonneborn's structure, rent plus a royalty on sales, detached the franchisor's income from the franchisee's profit, and from that day the two parties could sign the same contract while being in different businesses. Harper's ladder had acquired a rent book.
Franchising is a transmission mechanism. It transmits the economics of the underlying business, its growth, its margins, its decline, directly into the life of whoever signs, with a force no employee ever feels, and no shareholder ever matches, because the signer has typically staked their house, their redundancy money, or both. Bolt the mechanism to a growing category with genuine unit margins and it is one of the great engines of small wealth ever devised, a safety net of empowerment: the brand absorbs the risks a lone founder cannot, the playbook spares you a decade of mistakes, and a McDonald's site has made more ordinary families wealthy than almost anything else the high street has ever offered, which is why the chicken-shop end of the market is booming in Britain right now, Wingstop past its 100th site, the Americans arriving in waves. Bolt the same mechanism to a thin-margin business in a declining category, and it transmits the decline downward with the same efficiency, while the royalty, charged on revenue rather than profit, flows upward regardless. Head office is paid on the top line. The franchisee lives on the bottom line.
Work it through once, in pounds: a shop turning over £600,000, paying a 5% management fee and a 4% marketing levy, rates well inside the industry's normal range, sends £54,000 upstairs before it has paid rent, stock, staff, or its owner a wage, and in a thin-margin trade that can be more than the owner keeps, which means head office earns more from the counter than the person standing behind it. In a growing business, that gap is a detail. In a shrinking one, it is the whole story, and the contract does not change a word as the building changes underneath it. Which raises a question the coverage rarely asks: why would a company franchise a declining business at all?
This is because the transmission carries whatever the contract points it at. In a growing category, selling franchises sells access to the growth. In a declining one, it buys an exit from the decline: a company-owned store's losses sit on the company's books, a franchised store's losses sit on the franchisee's, and the conversion keeps the distribution running, every sale still feeding the brand, while the lease, the payroll and the shrinkage move onto somebody else's mortgage. Closing a failing shop costs write-offs and headlines. Franchising it earns a fee.
And the machine spares nobody, including the people upstairs. F45, the Australian fitness franchise, sold 45-minute group workouts and, more importantly, sold franchises: by the end of 2021 it had opened 1,749 studios in 45 countries, floated on the New York Stock Exchange at $16 a share and a $1.46bn valuation, Mark Wahlberg as Chief Brand Officer, and its chief executive was telling interviewers the plan was to sprint past Planet Fitness and be bigger than McDonald's. The accounts told you what the company actually was. In the quarter after the float, $20.6m of its $26.8m of net sales came from selling franchises, 554 of them in 3 months.
The product was the franchise itself. Head office was paid on expansion, and expansion alone, so when cheap financing dried up in 2022 and would-be franchisees could no longer borrow the entry fee, the machine had nothing under it. Revenue guidance halved. Franchise sales collapsed by 60%. The chief executive left, 35% of the workforce followed, and in August 2023 the company delisted at 12¢ a share, $16 to 12¢ in 25 months, its value fallen from $1.46bn to $12m, its franchisees failing alongside it. A franchisor that sells territories faster than the model can carry them is not exploiting the system. It is strapping itself to the same transmission, and both floors of that building turned out to be the same floor.
The offending article
Which brings us to the phone shops. Vodafone began converting its own high-street stores into franchises in the late 2010s, offering them to small operators, many of them former employees, as high-street phone retail thinned and the business moved online. Set that conversion against the mechanism above, and it explains itself: the leases, the wages and the risk moved off Vodafone's books while every sale still fed the network. Vodafone has always described the programme as a commercial partnership and its current network as successful. In 2020, after the operators had signed, borrowed, and opened, Vodafone cut the commissions they were paid. Court papers filed by 62 former franchisees, nearly 40% of the entire network, allege what followed: fines running to thousands of pounds for minor administrative errors, personal debts past £100,000, operators encouraged toward loans and government grants to stay afloat, and a claim that the company had unjustly enriched itself by up to £85m.
Adrian Howe, a former Vodafone employee, agreed to take on one of the new franchises in 2018. Last December the Guardian reported that he had taken his own life, and that two further franchisees, describing the debts that followed the commission cuts, had made attempts on theirs. MPs compared the affair to the Post Office Horizon scandal. Vodafone rejects that comparison as wholly inappropriate and denies the allegations entirely, describing a commercial dispute over the interpretation of contracts; it has apologised to franchisees who had a difficult experience, reimbursed £4.9m across the estate including repaid fines and clawbacks, and in July it settled the claim, confidentially, without admission of liability, before trial. What remains, on the record, is the shape of the transaction: a company that converted its own declining shopfronts into other people's businesses, and then changed the terms. Whose risk moved where is now, formally, the government's question.
Because that is what happened on Sunday: ministers ordered two reviews of the entire sector, one with the British Franchise Association into the domestic market, one with the Centre for Economic Policy Research into how other countries police the model. Britain currently has no franchise law. The prime minister had promised as much in January, after the December investigation reached the front pages; the reviews arrived in August. The relationship is governed by ordinary contract law and a voluntary code, on the assumption that a franchise agreement is a deal between two businesses negotiating as equals. Hold that word up to the light.
One of the equals wrote the contract, sets the prices, owns the brand, and can cut the commissions; the other signed it with their house. Australia abandoned the assumption in favour of a mandatory code. America tempers it with compulsory disclosure: before an American signs, federal rules require the franchisor to provide a document detailing its litigation history and the fate of its former franchisees. A British signer is legally owed nothing, which means the glossy projection on the exhibition stand is, in the eyes of the law, a brochure. Whether any of this survives contact with the evidence above is precisely what the reviews are meant to decide, and Adrian Howe's family, who were never part of the settlement, are campaigning to ensure the answer is delivered as a statute.
Be fair to the model, because the model is not the villain. Franchising has built more small-business wealth than almost any structure in commercial history; most franchisees are neither ruined nor angry, and the brands that do it well, training, supporting, expanding at the speed the economics allow, are the reason it spread to fifty thousand British businesses in the first place. The instrument is neutral. The instrument is also powerful, and powerful instruments transmit whatever they are attached to.
You are in this story too, even if you never sign anything, because nobody can tell from the pavement which shops are franchises. The sign is identical, the uniform is identical, the till is identical, and the person behind the counter whom you have always taken for staff is, in a fair number of the shops on your high street, the owner, carrying the lease and the payroll behind the brand's name.
One of the few tells is the card machine: when a familiar brand's shop won't take Amex, you are quite often looking at a franchise, because fees a corporate estate absorbs without noticing land differently on someone paying their own merchant bill. Britain's high streets are a map of hidden owners, and you have been transacting with them blind for years, including in 2020 at the phone shop.
Every April the threshold has a postcode. At the ExCeL in London, 250 franchise brands take stands at Britain's biggest franchise show, 60 seminars, a finance clinic to help with the borrowing, free tickets, and the industry's oldest promise printed across the hall: become your own boss. Walk the aisles, and you can watch the pitch meet its audience, people holding redundancy money and an ache, handed glossy earnings projections by brands whose own accounts they will never think to read. What the show sells is the feeling of out: out of employment, out of other people's control, into something with your name over the door, except that the name over the door is the one thing that will never be yours.
Their words
The questions that matter at that threshold are not about the brand; they are about the building. What is the underlying business, and is it growing or shrinking? Where do the margins actually sit, and who is paid on revenue while you live on profit? What happens to your numbers if head office changes the terms, and what, precisely, does the contract let you refuse? Ownership, properly understood, is the capacity to refuse, and a franchise agreement is best read as an inventory of your refusals.
Count them before you sign. If the count is zero, you are not buying a business. You are buying a job that cannot fire you but can bankrupt you. And notice the one refusal in this whole story that actually worked: no Vodafone franchisee could refuse alone, but 62 of them together, 4 in 10 of the network, extracted a settlement from a FTSE 100 company. Where the contract grants you no refusals, the remaining power is numbers, and numbers are precisely what the model's geography withholds: owners in separate towns, on separate contracts, who never meet.
Now widen the lens, because the franchise stopped being a high-street arrangement some years ago and became the operating logic of the age. The delivery rider owns the bike, the insurance and the risk; the platform owns the brand, the prices and the algorithm, and takes its cut from the top line. The creator owns the burnout; the platform owns the audience and can cut the commission or the reach overnight, without a meeting.
Sonneborn's detachment, income from your revenue rather than your profit, is now the business model of most of the platforms on your phone, and be your own boss has become the most efficient rights-removal sentence in the language: an employee is owed a minimum wage, notice and a tribunal, while a boss is owed whatever the contract says, and the contract was written upstairs. A franchise, seen from this height, is freelancing with a roof, and the gig economy is franchising without one. Which casts the 62 in their true light. A century after workers won their protections by organising, Britain's franchisees found themselves outside all of them, and reinvented the union from first principles, because collective action is the only tool that predates employment law. Where the law calls you an owner, only numbers make you one.
Martha Harper died in 1950, her name largely forgotten, her invention everywhere. 500 women climbed out of domestic service on the ladder she built, and the ladder still works, everywhere it is leant against a building that can bear the weight. That was her genius, and it is the entire lesson: she never sold the ladder alone. She sent the method, the training and the tonic up every one of them, and her own fortunes lived or died with the women on the rungs.
The government is now, 130 years late, asking whether the modern version still works that way, and every person standing at the bottom rung with their savings in their hand should ask the same, because the ladder will take you up whatever it leans against, and it is not the ladder that decides where you end up. It never was. Be your own boss. It was a beautiful promise the first time it was made, in Rochester, by a woman who had scrubbed the same floors as the women she made it to, and who built the whole machine so that she could not rise unless they did. That is the entire test, and 130 years have not changed it. Harper was paid when her women reached the top. Everyone since has learned to charge by the rung.
See you on the next one.
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Refs
