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Bodies and Structures 2.0: Deep-Mapping Modern East Asian History

Franchising Methods

Franchises were fundamentally contracts between two parties with mutual obligations. A merchant who chooses to join a franchise can break the contract if the parent company does not fulfill specified obligations. Franchises are often confused with chain stores (and, indeed, often used interchangeably), but the difference is that franchises offer local merchants a measure of autonomy compared to chain stores, which are owned by the parent company. The difference lies in the ownership and the assumption of risk.

In Japan, franchises and chain stores became popular after World War Two, when the Allied Occupation fostered an influx of American culture and ideas. But both business organizations actually began to take root during an earlier influx of American ideas of mass production and consumption, during the very same post-World War One years also marked by overproduction and a global recession from Western Europe to Latin America to Asia (de Grazia 2005). Franchising as a business model became popular earlier, likely because it did not require as much capital and organizational infrastructure as chain stores. Hoshi Pharmaceuticals was one of the very first companies to form franchises along with Kao, Lion, Shiseidō, and Taishō (Rubinfein 1995, 238-239). In Japan, the most prominent examples remain the “Shiseidō Chain Store” signs (written in English characters), which can be found adorning mom-and-pop owned Shōwa-era cosmetics and drugstores near local train stations. Indeed, their ubiquity, even in the present day, demonstrates the slippage and confusion between chain store and franchise: they were often thought of—at least in Japan—as one and the same.

What these companies all had in common was that they sold “non-essential,” non-durable consumer goods like cosmetics and patent medicines that depended on the energy and skill of sales people. They saw franchises as a solution to an age-old problem: the loss of control over products once produced. Manufacturers had been at the mercy of individual merchants to sell their goods, but how did they know these merchants were doing all they could to increase sales? What if they were actually encouraging a rival's products over theirs? Franchises and chain stores helped manufacturers reduce costs, improve efficiency, and most important, provided some measure of control over the distribution process.

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Hoshi Franchise Store
Hoshi Pharmaceuticals originally did not have regulations concerning the spatial layout of its individual franchises. A franchise, by definition, was simply an exclusive contract. But as the company expanded, it examined ways to increase revenue. One of the most important ways was to control distribution, and most important of all was the attempt to control the point of contact between merchant and consumer. Controlling the space of the drugstore was so important for drug manufacturers because consumption was not a given. Indeed, the popularity of franchising across the world in the early twentieth century can be attributed, in large part, to how franchises helped ameliorate the loss of control over products once produced. Hoshi structured the space of its drugstores in order to define and delimit the boundaries of contact. These are, as the following pages illustrate: 1.) the local, 2.) the regional, and 3.) the global.
The “Exclusive Contract” Store
Hoshi Pharmaceuticals based its franchise system on a simple contract between the company and an independent, individual store. After signing an exclusive contract (tokuyaku) with the company, a store became a franchise—literally an exclusive contract store (tokuyakuten). A franchise could engage in other side businesses and sell other goods, provided that they did not compete with Hoshi-manufactured products. In exchange, the franchise had access to the company's national advertising network, marketing advice, and, of course, merchandise.
Hoshi's franchise system depended on growth and recruitment. It pursued a strategy for recruiting franchise members that attempted to build loyalty and trust, not only between customers and stores, but also between the company and the franchise workers who sold the products. Hoshi set barriers to entry deliberately low: the cost of the contract was a deposit originally set a minimum of 10 yen in 1910, but later increased 25 yen by 1912, paid up front to the company (“Tokuyaku-ten dai-bōshū” 1912-13).
The company did not just use franchises to market its products, but to advertise the franchises themselves. It lured prospective merchants with the potential for exponential profits. One its earliest national recruitment campaigns invited prospective franchisees to contact the company for an application, stating “any person, in any location, can with as little as 10 to 15 yen of capital, earn more than 80 yen in a year” (“[Kōkoku] Hoshi seiyaku-jo: Tokuyakuten” 1910). Another recruitment campaign boasted that “Based on a calculation of growing profit from the use of newspaper advertising, there are those who have earned more than two-hundred yen with as little as 25 yen of initial capital, while there are many cases of those who, with a two hundred yen investment, earned more than 2,000 yen.” The advertisement, which ran on multiple occasions in Japan's major dailies across the country, continues by guaranteeing that if a hardworking location puts down 50 yen of capital, it would earn more than 300 yen in a year (“Tokuyaku-ten dai-bōshū” 1912-13).