A Comparison of Company Owned and Franchised Fast Food Outlet Performance: Insights from Health Inspection Scores

Abstract

The paper compares the performance of franchised and company owned fast food outlets located within the same region in the USA. These outlets are inspected by the same team of health inspectors who use a standardized 44 item scale derived from Federal Drug Administration guidelines. Analysis of the health inspection scores received by the fast food outlets over approximately two and a half years shows that franchised stores receive significantly better ratings. The inspection scores of franchised outlets also have a lower standard deviation than that of company owned stores. The results support the view that the incentives provided in the franchise contract as well as the additional layer of supervision by the franchisee are likely to lead to better and more consistent outlet performance. At the same time, there are a few chains where company owned stores get higher scores than theirfranchised counterparts. This suggests that there are inter chain differences in the operational efficiencies of the two organizational formats.