Business: FRANCHISING: NEW POWER FOR 500,000 SMALL BUSINESSMEN

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Monitored Motels. The franchiser's influence on its outlets is often pervasive. Holiday Inns, for example, monitors its motels to make sure that they spend at least 2.6% of room revenues on soap, towels and other guest supplies. Because of such vigilance, the industry claims, fewer than 10% of all franchises fail in the first 18 months of operation, compared with 50% for small businesses as a whole. Chicago-based McDonald's Corp., which sells 2,000,000 hamburgers a day (and grossed $335 million last year), boasts that not one of its 1,100 outlets has ever lost money. To keep the profits flowing, McDonald's takes pains to pick ambitious managers, then sends them to its "Hamburger U" in Elk Grove Village for a three-week cram course in how to keep the overhead as lean as the beef.

In many localities, franchisers are pinching independent businessmen, often to the point of forcing them out of business—or into a franchise network. At the same time, the food-franchise field is becoming unmistakably crowded, raising the question of just how much fried chicken and hamburgers the public can consume. Many Wall Street analysts expect a shakeout, with marginal operators either going out of business or consolidating with bigger competitors. In another form of consolidation, many leading franchisers, including Kentucky Fried Chicken and Howard Johnson, have repurchased a number of their franchises. Howard Johnson says that in the future most, if not all, of its new motels and restaurants will be company-owned. Besides being more profitable, explains President Howard B. Johnson, company-owned outlets "enable you to maintain better quality control on service." For the same reasons, Holiday Inns last week was negotiating to buy up 100 of its 898 franchised motels.

The Dominant Form. In one sense, such activity only underscores the success of franchising. It means that the leading operators have amassed so much money that they no longer need franchising for inexpensive expansion. In any case, the trend gives so few signs of slowing that officials of the International Franchise Association predict that the industry will eventually become the dominant form of retailing. Even as Howard Johnson and Holiday Inns have moved to cut down on franchises, two competitors, Sheraton and Hilton Hotels have been rushing headlong into franchising. So anxious is Hilton to enter the field that rather than develop its own outlets from scratch, it has arranged to franchise existing hotel and motor inns under its own name.