🍟 9/18/2023 – Ten Surprising Facts About The Franchise Industry
10 Data Points About the Franchise Industry
Before getting to the data, I want to set the stage with where it’s all coming from, and things to keep in mind when reading it.
Firstly, all the information is from Krokit’s backend data system. There’s currently 2,283 brand profiles on Krokit, of which we scrape all the information possible in FDD’s between the years 2020-2023.
There are more than 2,283 franchises in America (which I’ll dive into with the first data point) , but this is still a fantastic sample size that includes all the major brands, thus giving us a great indicator of franchises at large. Let’s get to it…
1. There are ~3,000 Active Franchise Brands In America
There are a lot of media sources that cite there are 4,000+ franchises in America. I’ve probably used that number at various points as well.
While Krokit only has 2,283 franchise profiles live on the platform, we do have another ~500 FDD’s in process. This is after scraping every FDD source imaginable, and working directly with state departments to get filings sent to us, as well as utilizing “secret sources” for FDDs that most of the industry probably isn’t aware of.
The point is, after doing all of this, we are still well shy of the 4,000 brands we’ve seen cited. I had to ask myself, “how are we not able to find the other 1,000+ brands, while others apparently can?”
I (or colleagues of mine) decided to get intel from the only other 2 data companies in franchising. Low and behold, it turns out that employees from both companies independently told us that while they advertise differently, they believe that the number of active franchise brands in America is actually around 3,000.
Note that the 3,000 number excludes a bunch of brands that at one point were franchising, but no longer are.
2. There are ~550,000 franchise territories / locations operating in the US
This was a shock for me, as the often cited number of franchises operating is near ~800,000.
However, after adding up the total locations for all 2,283 brands, it comes out to just 509,269 locations.
Of course, we are missing another 700+ brands, but the reality is that 509,269 factors in all the major brands, from fast-food, to fitness, to hotels. It’s fairly easy to get FDD’s once brands are expanding beyond 10-20 units, so there are no large franchises hiding out there that aren’t factored into the 509k unit stat.
The brands we are missing are all likely in the “Micro” stage of franchising, meaning they are sub 10 locations. Thus, I’ve added a generous 40,000+ locations to the data we know for certain, and even so, it only adds up to 550,000 locations operating.
That’s a 30% haircut on the size of the industry (in terms of units) relative to what is commonly being quoted.
3. The Median Number of Locations Open Per Franchise is 38
This should be a sobering statistic for franchisors, and anyone considering buying a franchise.
The brutal reality is that franchise expansion is incredibly difficult, and the large majority of franchises don’t even break 50 locations open. The average units open is 222, but that of course factors in the McDonald’s, Subways, etc. of the world.
Don’t forget – they are the exception, not the rule.
Franchise brokers and franchise sales organizations do a great job of patting each other on the back about
how much commission they’re making off of franchise fees how many units they’re selling, but this should be a wake-up call that units sold doesn’t mean sh*t.
On the flip side, for the brands that do grow like a rocketship i.e. Crumbl Cookies with 900+ locations open in just 6 years….they deserve the recognition they get, because the large majority of franchises cannot handle that kind of growth.
4. The Median Unit Growth Per Franchise Per Year is Just 2-4 Locations*
*This factors in annual location growth data since 2019, but does not factor it in for any year prior.
Even with the asterisk, this is a sobering statistic. Most franchises today are not growing fast at all.
I used a range here purposefully, as I first took the median net unit growth of all franchises in Krokit, which factors in big brands that have over-expanded and are closing hundreds or more units like Subway (-4222), Pizza Hut (-652), Keller Williams (-758), etc.
The median growth for all franchises is 2 units, however when you exclude the brands with negative growth it increases to 4 units per year, which could be helpful if you’re evaluating emerging brands only.
Regardless, the overall average unit growth is just 7.6 locations per year, so any way you slice it, the large majority of brands aren’t opening many locations each year, despite how many units they may have sold.
5. The Average Founded Date For Franchises Is 1997
I don’t have much to add here, other than that for new franchisors who are thinking they can start franchising their concept and immediately have hundreds of locations, I would temper expectations accordingly.
The majority of franchises you look at were founded more than 2 decades ago.
Growth takes time.
Read that again!
6. The Average Franchising Date Is 2007
Given the previous statistic, the typical franchise ran their own corporate locations for ~10 years before deciding to franchise their business.
I personally don’t think that should be a rule or anything, but felt it was an interesting stat to put out there.
7. The Average Failure Rate In The Last 3 Years is 17%
There’s a lot of garbage out there when it comes to the failure rate of franchises. Some push numbers as low as 5%.
While there are absolutely franchises that have 95% or higher success rates, at large it doesn’t appear that way (at least over the last 3 years).
My advice to anyone evaluating a franchise – ask the franchisor this question during due diligence.
Or better yet, go to item 20 table 3 in the FDD, and get the number for yourself. Then, go ahead and ask the franchisor to see how they respond!
8. 46% of Franchises Don’t’ Share ANY Financials In Their FDD
I’m not surprised by this as for the last 26 months I’ve been writing a newsletter that breaks down emerging franchises. The hardest part is simply finding brands that even share financial performance representations.
9. Only 11% of Franchises Share Profitability Metrics In Their FDD
Again, not surprised. Especially considering what I’ve learned via launching Krokit’s financial data management tool for franchisors – we’ve had conversations with brands that have over 500 locations and still are collecting financial data manually from their franchisees.
It’s 2023 folks, you should be automating your financial data collection from franchisees and standardizing it to the best of your ability.
10. The Average Number of Units Signed For But Not Opened is 19
I was a bit surprised this number wasn’t higher, but then again, the large majority of brands are trying to grow organically, and thus aren’t paired with Franchise Sales Orgs that have dialed in franchise development teams.
To piggyback off a prior data point, any prospective franchisee should have an understanding of how many units are signed for but not opened, as well as how many units they’ve gotten open each year.
I’ve spoken with brands that quite literally have 100+ units sold, but have opened less than 5 locations annually. Don’t get fooled by units sold folks!
Neighborly CEO Mike Bidwell Dies Unexpectedly, Interim CEO Appointed
Mike Bidwell, the CEO of Neighborly, has died at the age of 65.
Bidwell started in the Neighborly family of brands in 1984 as a franchisee of Rainbow International Carpet Cleaning in Tuscon, Arizona. He became the company’s first multi-brand franchisee a few years later in 1987, when he opened what is now known as DreamMaker Bath and Kitchen. In 1992 he added a Mr. Rooter Plumbing franchise. By 1995, Neighborly recruited him to its headquarters in Waco, Texas. In 2014, he was named president and CEO of the umbrella home services company. The company announced his unexpected passing September 8. Neighborly didn’t disclose the cause.
Bonchon Meets Demand for Addictively Crunchy Korean Fried Chicken With New Locations in Alabama and Arizona
Bonchon, on a mission to share the joy of Korean food around the world, today announced that five new stores in Alabama and four in Arizona are slated to open starting in 2024. Building on the momentum of 38 units signed to date this year, the brand is now setting its sights on further expansion throughout Atlanta, Chicago, and Minnesota. Bonchon has maintained several consecutive years of sales growth with an Average Unit Volume of $1.68 million across 124 locations in the United States and over 420 units globally.
The brand first caught the attention of Tucson franchisee Matt Quick while he flipped through a magazine on a flight and saw that Bonchon’s wings were named the best in Dallas. Quick, then the owner of five locations of a major pizza franchise, had been on the hunt for a new concept and was inspired to embark on a “Korean fried chicken road trip,” stopping first at the Bonchon in Tempe. He was amazed by how fresh, light, and delicious the wings were and after checking out a competitor and visiting another Bonchon location in Las Vegas, he became “obsessed.” Quick connected with Bonchon’s franchise development and soon signed on to bring the brand’s first location to Tucson, with construction currently underway.
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