Franchise Times Top 200
Here’s a whopping number: The 200 largest franchise systems on our annual Franchise Times Top 200 ranking reached $590 billion in total sales in 2013. The biggest franchise companies are adding a lot of units in international markets. This has been true for years. The percentage of locations outside the United States has increased every year we have published our annual 200 report. Lately, that development appears to have accelerated.
The number of international locations operated or franchised by companies on the Franchise Times Top 200 grew by 10.3 percent in 2013. By comparison, domestic growth was just 1.3 percent. Let’s put it another way: The largest franchise systems added four locations in a foreign market for every unit they added stateside in 2013.
The average large franchise system now has 36.3 percent of its locations outside of the United States, nearly two full percentage points higher than 2012, when that number was 34.4 percent. When we first published the ranking in 2000, that percentage was 27 percent.
Companies on the Top 200 ranking reported $590 billion in sales in 2013, up 4 percent from 2012, when they earned an adjusted $567 billion.
That’s inline with the rate of retail sales growth. Our rankings measure franchise performance based on total worldwide system sales. That gives systems credit for how much they sell, rather than simply how many units they build. On a unit basis, for example, McDonald’s would only be the third largest franchise after 7-Eleven and Subway. But the chain’s unit volumes, combined with that presence, make it a worldwide behemoth.
Private Equity: Itchy for growth
Perhaps one reason for the increased international development is the growing ownership of franchises by private equity groups. These investment groups are itchy for growth and have to sell within a few years, putting pressure on the companies to add units.
For the first time this year, we asked franchises submitting information whether they were owned by a private equity group. According to our survey, 71 of the 200 companies on the Franchise Times Top 200 are owned by private equity funds. That’s a sizable percentage, especially considering most of the rest are public companies.
Interestingly, private equity ownership is more likely among the smaller franchises, the companies that make up the next 300 franchise systems on the ranking. Private equity owns 225 of the total of 500 companies.
Private equity groups love franchising. The business model enables brands to grow fast because the onus of financing new units is placed on smaller companies (franchisees). Because franchisees are funding their new units either through debt or their own cash, franchisors have low capital requirements and thus are generally more profitable.
Companies have thus been more likely to franchise locations over the years. In 1999, companies on average franchised 79 percent of their units. Companies in 2013 franchised 85 percent of their locations.
There was very little change among the top franchises. The top seven, McDonald’s, 7-Eleven, KFC, Subway, Burger King, Hertz and Ace Hardware remained unchanged this year. Circle K and Pizza Hut switched spots to No. 8 and No. 9, respectively, but there were no newcomers to either the Top 10 and the Top 25.
And once again, the ranking was top heavy. On their own, McDonald’s and 7-Eleven represented 16.5 percent of all sales in the Top 200. The top 10 franchises, meanwhile, represent nearly half of the total sales for the 200—$292.6 billion overall.
But that’s actually been falling. In 2011, the Top 10 accounted for 50.2 percent of overall sales, and last year that fell to 49.9 percent. Slowly but surely, the smaller franchises, at least among the ones on this ranking, have been gaining ground.
Research for next year’s ranking begins in April. If your system would like to submit information for the first time, or if the contact person changes for established participants, contact Abbi Nawrocki, firstname.lastname@example.org.