Do Franchise Systems Advertise Enough? U.S. Restaurant Expenditures and Performance 1989 to 1998

Abstract

A recent article has raised the question “Do Franchised Systems Advertise Enough?” (Michael 1999), showing that franchised restaurant and hotel systems expend a significantly lower amount of advertising as a percent of sales than do corporate chains. This article examines this concern by using longitudinal data from franchised restaurant chains' advertising expenditures from 1989 through 1998. First, the article examines the proportions of expenditures recorded in Ad $ Summary, showing that the amounts expressed as percentage of sales, are quite variable both within and across franchise systems, in contrast to how the advertising budgets are established. Second, an analysis shows a substantial amount of variance in these expenditures can be attributed to the size, ownership, and contractual nature of the franchise system. Last, a withinsystem analysis of advertising expenditures and store performance indicates the majority of franchises systems are at a stage with few returns to advertising. While the proportion of franchisee ownership in franchised systems is associated with lower advertising expenditures, the results show that advertising within franchised chains are at a level of competitive parity with corporate restaurant chains and finds no evidence to support gains from increasing expenditures.

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