The Impact of Expansion Structure on Performance in Franchise Systems: Focusing on Franchisee Stability

Purpose: This study aims to reexamine franchise performance from a distribution channel perspective by focusing on the structure of expansion incorporating franchisee retention, rather than simple outlet growth. Specifically, it investigates whether such expansion structures are differently associated with franchisee-level and franchisor-level sales, and whether training fees condition the relationship between expansion structure and performance. Research design, data, and methodology: The study employs secondary data from 150 franchise systems in South Korea, integrating publicly disclosed franchise information reports and franchisor financial data for the period 2016–2018. Expansion structure is operationalized using store expansion structure (SES), which captures the balance between new outlet openings and outlet retention. To assess robustness, an alternative measure—growth adjustment index (GAI)—is additionally employed. Cross-sectional regression analyses are conducted to examine the associations between expansion structure and franchisee sales as well as franchisor sales. Training fees, measured as a proportion of total franchisee start-up costs, are included as a moderating variable, along with several structural and financial control variables. Results: The results show that expansion structure is positively associated with franchisee sales, whereas no significant association is found with franchisor sales. This pattern is consistent across both SES and GAI measures, supporting the robustness of the findings. Moreover, the interaction analysis indicates that training fees marginally weaken the positive association between expansion structure and franchisee sales, while no moderating effect is observed for franchisor sales. Additional analyses using entry fees as an alternative moderator reveal no significant interaction effects, suggesting that the moderating role of training fees may reflect the distinctive characteristics of training-related costs rather than cost magnitude alone. Conclusions: This study contributes to distribution and franchise research by highlighting the importance of expansion structure incorporating franchisee retention in shaping performance outcomes within franchise channels. The findings suggest that such structural characteristics are associated with franchisee performance but not with franchisor performance, indicating potential asymmetry in performance outcomes within franchise systems. Furthermore, the results suggest that cost structures—particularly training fees—may condition how expansion structure relates to franchisee performance. Overall, the study advances a structural perspective on franchise growth and provides insights into how expansion strategies and cost design jointly relate to channel performance.