Background – The franchising industry in Sweden has experienced a vast growth in the recent years, and it makes up a significant part of the Swedish economy. The restaurant industry accounts for a large amount of the Swedish franchises. Due to the dynamic business environment today, companies need to increasingly strive for improvement in order to sustain their competitive advantage and to enhance their performance. Innovation may be required, and franchises are no exceptions. However, due to the nature of the franchise systems, with the franchisor imposing particular policies on the individual franchisees, the position of innovation in this context is not clear. On one hand, a franchise should act innovatively in order to remain competitive in the marketplace, but on the other hand, the franchisor limits the activities of the franchisee to ensure system uniformity through brand and quality management. The position of innovation in the franchise context is ambiguous, since very little research has been conducted on the topic.

Purpose – The purpose of this thesis is to examine Swedish franchises within the restaurant industry and to determine the position of innovation in the franchise context from the perspective of the franchisee.

Method – A case study with semi-structured interviews with five franchisees in a specific region in Sweden were conducted to gain empirical material on the topic of innovation within restaurant franchises. The obtained data was then analyzed with the help of existing literature on innovation and franchise systems.

Conclusion – It was discovered that Swedish franchises within the restaurant industry pursue product and marketing innovation. The innovation is mostly incremental, rather than radical. Several different factors contribute to why franchisees pursue innovation. It was also identified that some Swedish franchisors take an active role in encouraging innovation in the franchises, while other franchisors have a more passive, or even discouraging stance towards franchise innovation.