The Restaurant Finance Monitor's 2010 Top 200 Restaurant Franchisees
Where do you find the top U.S. restaurant franchisees? On the Monitor 200 list. Our sister publication, The Restaurant Finance Monitor, compiles a roll call of the largest restaurant franchisees based on sales.
By Jonathan Maze
In a down year, many of the operators on this year’s ranking have seen significant growth, led by NPC International, which grew 22.5 percent thanks to an acquisition of Pizza Hut restaurants from Yum! Brands. Apple American Group likewise took the No. 2 spot on the ranking after it acquired Applebee’s locations in California. Others, like No. 9 Briad Group, are expanding even in the face of a challenging environment. And Tacala, a big Taco Bell operator, shot up the list, to No. 22 from 32, thanks largely to the addition of 69 Sonic restaurants to its portfolio.
But make no mistake about it, Monitor 200 restaurant franchisees got hit hard last year. On the surface, this year’s ranking shows a thriving group of franchisees. Collectively, the 200 took in $21.8 billion in revenue in 2009, up from $21.3 billion last year and well above the $15.8 billion earned a decade ago. They operate more units, too.
The numbers are misleading, however, because this year’s ranking includes a handful of large operators not included in past years, making this a more complete ranking. In reality, many of the franchisees this year reported lower sales. Yum! Brands’ concepts are all struggling with declining sales. Burger King, Wendy’s and Applebee’s are likewise seeing sales declines. When the brand struggles, franchisees often follow suit.
Economy be damned
That said, one of the things that sets large operators apart is their willingness to grow even in the face of immense economic challenges. It’s not uncommon to find big, multi-unit franchisees continuing to build. JIB Management, No. 28 on the ranking, acquired some of Foodservice Management’s Jack in the Box locations, and plans to develop Marco’s Pizza in California.
Much as in past years, this year’s ranking is dominated by well-known, limited-service concepts. But casual- and family-dining operators continued to have a strong presence—69 franchisees operate a casual-dining restaurant, up from the 64 last year, according to our research. And we found 14 operators who had at least one fast-casual brand. Many of them operate Panera Bread restaurants, and in most cases they were secondary brands.
We expect the number of fast-casual brands on the list to grow in future years. For one thing, those chains are more likely to add units now than casual-dining or QSR, thanks to financing concerns. And many large operators have bought into brands like SmashBurger and Capriotti’s as they seek growth concepts.
Going into the wild new yonder
As it is, this year’s operators are already delving into newer concepts. Names like The Counter, Pinkberry, Space Aliens and Urban Flats Flatbread are among the secondary concepts that Monitor 200 operators are developing. And diversification continues to be important among the top operators—101 of the 200 franchisees have two or more concepts, and many, three or even four concepts. By comparison, 76 restaurant franchisees operated more than one concept back in 1998.
That being said: NPC International is still No. 1, as it has been for years, and the rest of the top five is the same, although a two have switched spots.
Yum! Brands once again dominates—24 own Pizza Hut and those operators run 2,786 restaurants, the most on the list. Twenty-two companies operate KFCs, while Taco Bell is also well represented. Burger King has the most franchisees on the ranking with 28, followed closely by Wendy’s at 26 and Applebee’s at 25. McDonald’s has 18. More than two-thirds of the companies on the ranking operate one of these concepts plus Arby’s, Hardee’s or Sonic.
Large multi-unit franchisees are in heavy demand. Franchisors believe large franchisees can get financing more easily, a vital consideration in today’s market where financing problems create numerous roadblocks to concept growth. They can thus drive growth and can also drive sales through more sophisticated marketing efforts.
Just as important, big operators can be more profitable for the franchisor. “Larger franchisees will often require less in the way of support,” said Mark Siebert, CEO of the franchise consulting company iFranchise Group. With a few big operators there are fewer owners to support, and these larger companies often have their own opening teams, training programs, marketing staff and site selection team. Some go so far as to design and build their own stores.
This isn’t to say that large franchisees are easy. Many franchisors avoid them, because they can be demanding, especially when they have a high percentage of the brand’s stores. They’re also difficult to attract, because “every franchisor and their brother are out there looking for these guys,” Siebert said. That makes it difficult to get in front of them. Smaller franchisors, he said, should let their systems grow before targeting large area development agreements.
And while strong multi-unit operators can be immensely beneficial to the system, a struggling developer can create issues. If they don’t meet development schedules it can seriously hamper a chain’s growth. When the large franchisee has financial problems, the result can be disastrous. That risk became evident in the past year, when some companies that had been on the Top 200 went under.