Franchising in the US remodelling market: Growth opportunities and barriers faced by general contractors

Residential remodelling contractors operate in a highly fragmented, disaggregated market. Competition and consolidation arise from other market actors, thus remodellers have diminished bargaining power and higher market risk since they traditionally service geographically specific markets. Franchising theories may provide a competitive business strategy to parallel consolidation in other actors. Yet a small population of remodeling franchises are listed in the US. The vast majority of these franchises were in specialty trades and only one general contracting franchise was represented. This raises the question as to what extent there are barriers to franchising in practice for general contractors in the US remodelling industry and whether opportunities exist for growth through franchising. First, economic theories of franchising are evaluated against secondary quantitative data and extant literature. Second, interviews were conducted among non-franchising, general remodellers. Two principal findings emerge. Human capital requirements are found to be a primary barrier to franchising. A second finding is the perceptual barrier among key decision-makers in founder-controlled firms. Therefore, the barriers are largely perceptual. The finding is reflected upon by introducing upper-echelon theory and ultimately suggests that as the profiles of company owners change, the perceptual barrier to franchising may be of lesser significance.