1.0 Franchisor business model choices
A franchisor has two or possibly three potential ongoing income streams, sales and profits from company owned stores, royalties from franchisees, and the sale of "required" products or materials to franchisees with possible substantial profit margins for the franchisor. McDonald's, the franchising "gold stand" focuses on the royalty income stream that depends on individual store sales, but does insist that franchisees purchase products and supplies either from the company or approved sources.
The goal conflict is introduced by the attraction of saturating markets with incremental outlets which generate fees, royalty income and other sources but cannibalize each others potential market. This reduces the profitability of the market as a whole while it may increase franchisor revenues. McDonald jealously guards not only its own profitability but also that of its franchisees.
2.0 What are "satellite stores", and how do you think they affected (1) the company's brand name; and (2) the relationship between Krispy Kreme and their franchisees?
Satellite stores are retail outlets for KK donuts that do not incorporate production facilities. What is not clear is where the satellite units secure their product. Is it direct from Krispy Kreme or is it from the franchisee? It does not seem feasible that the main company could supply local outlets with finished donuts. It would appear that it must come from the franchisee that produces product that it delivers to the "satellite" units. The brand image suffered because obviously the quality of the shipped product was not comparable to that sold in the stores that incorporated donut bakeries that served fresher product. The "shelf life" of a donut is limited. As to the relationship with the franchisor this encouragement to develop satellite sales locations probably did not produce serious harm. From the standpoint of the franchisee, this ...