2008

2008 Top 200 Franchise Systems cover

Download the 2008 Franchise Times Top 200 Franchise Systems here.

The 2008 Franchise Times 200: The largest franchise companies

Economic insight

FT200 shows where the economy is going

By Jonathan Maze

To get a sense of how the U.S. economy performed last year, don't just look at the Franchise Times 200 as a whole, even though its sales kept pace with overall economic trends. Instead, look for the individual companies, and the sectors in which they operate.

In those numbers are a handful of key insights, some of which you might expect: The housing market hammered real estate companies, and high gas prices buoyed convenience store sales.

A few others may come as a surprise: hotels performed well, and casual-dining chains not only kept their places on the list, they remarkably added to their number despite analysts' near-universal views that the sector is in the doldrums.

The list also says that the biggest of the biggest U.S. franchisors continue to flex their muscles. The top 20 remains mostly intact from a year ago, and the two largest franchisors put even more distance between them and the rest of the pack. 

McDonald's remains firmly entrenched at the top. Its systemwide sales increased 12 percent after a year in which it could seemingly do no wrong. Despite that, No. 2, 7-Eleven, managed to reduce the distance between it and the top spot by increasing its worldwide sales an astonishing 27 percent. (See our cover story for more on this brand.)

Nearly all the remaining top 10 saw sales growth, even if it wasn't as strong as the two giants. No. 3 KFC ($1.8 billion in systemwide sales growth), No. 4 Burger King ($1.2 billion growth), No. 6 Subway ($1.3 billion growth) and eighth-ranked Circle K ($1.4 billion growth) can look back on 2007 with notable fondness.

Circle K, along with 7-Eleven and another chain, ampm, all demonstrated the strong sales growth in the convenience-store sector. Led in part by high gas prices, the nation's gas stations saw sales increase 6 percent last year, according to federal numbers – though the stores themselves note that increased gas sales don't usually result in bigger profits. Ampm, the BP-owned franchise, continued its solid showing, jumping up 10 spots from 39 to 29 on the strength of systemwide sales growth of nearly 30 percent.

While they may not have had the sales strength of the convenience stores, many other retailers on the list grew strongly despite some burgeoning economic problems that took hold at the end of the year. Among the surprises: Blockbuster was No. 13 on the list, up from No. 16 a year ago, thanks largely to 18-percent growth in systemwide revenue at a time when competition from all sides has been eating away at much of its typical customer base. Other retailers, like Matco Tools, General Nutrition Centers and The Athlete's Foot also saw revenue growth. Retailers added one name to the top 100: the growing floral company 1-800 Flowers, debuting at No. 82.

Some retailers could not shake the challenges facing their business. Radio Shack, which is facing a decline in mall traffic and intense competition from bigger electronic retailers, fell to 23rd from No. 20 after a 16-percent decline in revenue. 

Elder care companies don't have nearly the presence on the list that retailers do – only two – but they may become more common. Or at least those on the list should continue to grow as the population ages. Home-based senior-care company Comfort Keepers moved up to 182 from 198. And sector leader Home Instead Senior Care shot up to No. 110 thanks to nearly 25-percent revenue growth.

That growth isn't a surprise. This is: Casual dining restaurants fared well in 2007. The list includes several new additions of casual-dining chains, such as Peter Piper Pizza (198), The Melting Pot (196), Old Chicago (195) and El Chico Caf´┐Ż (188). And others grew substantially, led by Chili's, now No. 21 on the 200 after systemwide revenue grew 15 percent to $4.3 billion – it's now threatening No. 20 Applebee's, which saw revenues fall to $4.6 billion from $4.7 billion, for the right to call itself the nation's largest casual-dining chain.

T.G.I. Friday's, meanwhile, moved up to No. 33 from No. 40 thanks to an additional $318 million in revenue. Several others showed growth, even if it was more modest.

Incidentally, all four of the companies in the Top 200 that are listed as "fast-casual," Panera Bread, McAllister's Deli and Moe's Southwest Grill, grew substantially. And Jason's Deli made its first appearance on the list. It had $427 million and showed up at No. 136.

There are far more (35) quick-service restaurants on the list, and once again they dominated the top spots and the biggest ones continued to grow. Yet QSR results were also mixed. Systemwide revenues at No. 15 Taco Bell fell 7.7 percent – the chain was hit hard by a combination of public relations nightmares in the form of an East Coast e-coli outbreak, and competition from a fast-casual sector that is heavy on the Mexican food. Several other QSRs had more modest or stagnant growth even though the declining economy would tend to
favor them.

The economy didn't hurt hotels last year – the effects of the economy likely won't show up until next year's list. There's one more hotel in the Top 200 thanks to the appearance of fast-growing Baymont at No. 191, and most of the 42 lodging companies on this year's list boosted sales and their places among the 200. The top hotel franchise continued to be Marriott, which inched its way into the No. 10 spot with $8 billion in revenue. Among the notable jumps: Holiday Inn Express went from No. 33 to No. 26 after boosting revenue 20 percent; Red Roof moved up 24 spots to 122 after increasing sales 21 percent, and Travelodge moved up 27 spots to 129 after its revenues grew 26 percent.

On the other end of the spectrum is the real-estate industry. Four real-estate franchisors are on the list, and each of them saw revenue declines last year thanks to the one of the worst housing markets since the Great Depression. Century 21, which two years ago was 16th, fell nine spots to No. 31 this year. Revenues fell by nearly $1 billion at No. 12 Coldwell Banker, which still held onto its spot. Both Keller Williams (No. 41) and ERA (83) saw revenue declines,
too.

Overall, however, the Franchise Times 200 managed to keep pace with the economy. Worldwide sales for the group grew nearly 4.8 percent, exceeding the 4.2-percent growth in U.S. retail sales.

Yet a bigger percentage of those sales are coming from outside the U.S., continuing a recent trend. While the total number of units in the 200 actually fell last year, the number of domestic units fell much faster, by 1.4 percent, while the number of international units remained steady.

Indeed, several of the largest franchisors on the Top 200 saw domestic unit declines, including 7-Eleven, Ace Hardware and the Yum! Brands-owned KFC and Pizza Hut. Nevertheless, the nation's largest franchise by domestic units continues to find places to build stores: No. 6 Subway added more than 400 units in the U.S. last year and now has 21,195.

The numbers suggest that franchisors are finding the U.S. market saturated and increasingly competitive, and a growing number of even smaller franchisors are relying on overseas markets for growth. Future Franchise Times 200s could very well see more companies like No. 154 Kwik Kopy Worldwide, which has more international locations (297) than U.S. units (287).

But that doesn't mean some overseas companies aren't finding some success here. Canadian import Tim Horton's had 14.5-percent revenue growth to vault into the top 20, where it is the 17th-largest franchise. On the other side of the border, Pollo Campero makes its first appearance in the top 200, coming in at No. 149 thanks to $365 million in systemwide sales.

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