A cooperative franchise is exactly what it sounds like: a combination of a cooperative and a franchise.
Cooperatives are a formation, either within a business or between businesses, where participants govern the entity cooperatively. Examples include worker-cooperatives, consumer-cooperatives, purchaser-cooperatives, and multi-stakeholder cooperatives. Cooperatives are all examples of social ownership, which exists in contrast to private ownership. As a result, cooperatives are often more sensitive to their local communities, more resilient to economic shocks, and better places to work on a number of metrics. Despite these advantages, the cooperative economy struggles with expansion largely due to a lack of capital investment.
A franchise is a relationship that consists of a franchisor (the owner of a brand, supply chain, IP, etc.) and a franchisee (a local business owner) that grants the franchisee usage rights of the franchisor’s property. “Corporate” manages the brand, the supplies, and consistency while local owners manage how each instance is run, where new instances pop up, etc. This combination of consistency and flexibility has allowed for significant expansion. Examples are prolific, such as [Planet Fitness], [McDonald’s], [Dunkin’], and more.
As scholars of the cooperative economy investigate how to expand its reach, I wonder if the franchise model holds some clues. Cooperatives lack the capitalist incentive for scaling, but introducing a profit motive would defeat the purpose. Instead, the incentive can be found by reversing the relationship initiating the expansion. Rather than asking a cooperative to spend energy expanding their reach, simply open the doors to franchising entrepreneurs to create their own instance of the cooperative in their own community.
The franchise model is interesting because of its approach to maintaining local ownership. Its drawbacks stem from the direction that fees flow within the relationship. In order to use the brand of the franchisor, the franchisee must continuously pay fees for that usage. The franchisor profits off its existence and property, which is antithetical to a cooperative ethos.
The solution here is reminiscent of Bates’ Gedanken on Property Rights, and is as simple as flipping the direction that these fees flow. Instead of insisting on the primacy of some central entity, that entity can be cooperatively owned by the franchisees. Then, rather than paying tithes, these co-owners can collect dividends of the larger brand’s profits. We know this is possible because that’s How ACE Hardware Works.
This combination seems to be the best of both worlds, leveraging the scalability of franchises with the egalitarian nature of cooperatives. So why aren’t there more examples of this in the wild?
I’ll expand this post at another time with further exploration of the roadblocks facing other iterations of this model from cropping up, and what could be done to mitigate that. I’ll also need to continue reading Geertz’ Design of a Worker Cooperatives Society, since cooperative franchising feels like a step in that direction.