The 2009 Franchise Times 200: The largest franchise companies
There's more to the Franchise Times Top 200 than in years past
Over the past decade, franchisors have become larger and more global. They're concentrated in hospitality, but represent a surprisingly broad array of industries, like elder care and medicine. And franchise companies are more likely to rely on franchisees to carry out their operations. Much of that has been generally assumed in franchise circles, but the latest edition of the Franchise Times Top 200 provides proof. The list, our ranking of the nation's largest franchise systems by total sales, is now in its 10th year. An analysis of those rankings provides an intriguing look at the trends affecting the largest franchisors and, by extension, the entire franchise.
By Jonathan Maze
The Franchise Times Top 200 collectively demonstrated a remarkable ability to withstand the economic turmoil of the past year. All told, the franchisors took in $474 billion last year, 7 percent more than the year before. That equals the typical growth pattern for the Franchise Times 200.
Look deeper into the numbers, however, and the companies' success was more modest. For one thing, some large franchisors have been added to this year's rankings, like No. 12, Re/Max International, a real estate franchise.
Participation in the Franchise Times Top 200 is largely voluntary, so companies appear and disappear from the rankings from one year to the next--making annual comparisons difficult. The addition of franchisors is a reason the revenue numbers were higher this year.
Another reason: Success at the top. The four companies that sit atop this year's list--McDonald's, 7-Eleven, KFC and Subway--together added $15.4 billion in systemwide revenue. Indeed, McDonald's and 7-Eleven continued their dominance as the world's two largest franchisors--a place they've held each year since the ranking was first compiled. Illinois-based McDonald's, with an estimated $73.7 billion in systemwide revenue, was easily No. 1, and 7-Eleven, at $53.7 billion, was nearly $35 billion ahead of third-place KFC. No. 4 Subway, meanwhile, continued its steady march up the Top 200. The world's third-largest franchisor by unit count saw 14.2 percent systemwide revenue growth last year, leapfrogging Burger King (No. 5) and Ace Hardware (No. 6)--Subway was 16th a decade ago.
The rest of the top 10, remains largely unchanged aside from a few internal moves, including Pizza Hut (No. 7), Circle K (No. 8), Marriott Hotels (No. 9) and Wendy's (No. 10). Seven of those top companies were in the top 10 in 2000.
A franchise system had to take in more than $235 million in system sales to make the Top 200 this year, compared to $204 million a year ago. Some companies toward the bottom fell off even though they grew last year, such as Baymont Hotels, which dropped off despite gaining 3 percent more in sales.
An international flavor
A big reason many large franchisors succeeded in 2008 was the growth of international operations. This trend has been clear for years but seems to have accelerated in the past year. When the ranking was first published, 24 percent of franchisors' units were outside the U.S. This year that figure was up to 32 percent. Franchisors added 10,000 international units last year and added 5,000 domestic units. Even so, the additional domestic unit count is misleading, considering the entire difference can be traced to the addition of Re/Max and its 3,750 units and No. 21 HealthMart with its 2,039 domestic stores.
In simple terms: Franchisors were fortunate to avoid a drop in U.S. business last year--a clear sign of the credit crunch and of concerns that the domestic market in many franchise-heavy industries, such as restaurants, is largely tapped.
Not so in other countries. It's hardly a secret that the top franchisors on the list are also doing well overseas, and have for years. McDonald's is everywhere. KFC has more units overseas than it does in the U.S.--and its parent, Yum! Brands, is now trying to replicate its KFC China model in the U.S. 7-Eleven, meanwhile, is owned by a Japanese company and more than three-quarters of its units are in other countries.
Other companies are also performing better overseas, particularly hotels, many of which have been hurt by declining revenue numbers in the U.S. Minneapolis-based Radisson Hotels saw an estimated $150 million in revenue growth last year even though it has 16 fewer U.S. units--a loss more than made up for by the addition of 25 international hotels. Even companies toward the bottom of the ranking, such as Mr. Rooter (No. 184) and Cinnabon (No. 194) have substantial presences overseas. A decade ago, 60 chains on the Top 200 had no international units, this year 50 remains U.S.-focused.
Franchises versus company stores
Franchisors also appear to be focusing more on franchising rather than company-owned stores. Over the years, the Franchise Times Top 200 has slowly but steadily shifted toward fewer company units and more franchised units. That shift appears to be accelerating--more than 84 percent of the units on the ranking are franchise-owned, compared with 82 percent last year. A decade ago, that figure was 79 percent.
It's possible that growth could slow next year as the credit crunch keeps franchisees from opening more units while the recession leads to more closures. Or it could increase along with a handful of re-franchising efforts among sizable franchise companies. DineEquity, owner of IHOP and Applebee's, is selling company-owned Applebee's stores to move to the pure franchise model of IHOP. Yum! Brands is likewise refranchising many of its units--the company in late 2007 announced that it wanted to cut its company store count in half, from 20 percent to 10 percent, by the end of 2010. Other companies, such as Sonic and Jamba Juice, have also announced refranchising plans.
Numerous franchisors have held to the belief of keeping a certain percentage of stores themselves, if for no other reason than to show to franchisees that they have "skin in the game." The percentage has generally varied, but the growth in franchisee ownership is an indication that franchisors are focusing more and more on franchising, where profit margins are higher.
Indeed, it at least appears as if newer franchisors are intent on operating brands, rather than stores. Consider that a third of the top 100 franchise systems are 98 percent or more franchisee-owned. That figure increases to nearly 50 percent for the next 100 companies. And fully 70 percent of franchisors that didn't make the 200, but for which we have information, are nearly all franchisee-owned. In other words: The smaller--and perhaps newer--the company, the more likely it is to be fully franchised.
As franchising has grown over the years it has expanded into more industries and different sectors. Yet over the past decade the hospitality industry--namely hotels and restaurants--has solidified its presence in our Top 200 list. A decade ago, food and lodging franchises comprised 110 of the 200 spots on the list. This year, that's up to 123. All of that growth has come from restaurants and other food-related franchises. In 2000, eateries and take-out places took 71 of the 200 spots on the list. This year, 83 systems serve food as their main product.
Much of the growth has come in casual dining--30 family- and casual-dining restaurants are on the list, compared with 23 a decade ago. Several casual dining chains grew over the past decade, particularly after the 2001-2002 recession as credit flowed freely and banks' standards loosened. Chains like Famous Dave's, Johnny Rockets, Ruth's Chris Steak House and Uno Chicago Grill appeared on the ranking. Others, like Applebee's and Chili's, grew substantially.
Many of those chains, incidentally, saw drops in revenue last year, or they struggled to maintain sales--Ruth's Chris, Chili's and Ruby Tuesday, most notably. At the same time, fast-casual chains have been making their move. Seven fast-casual restaurants are on the ranking, including Panera Bread, Jason's Deli and Moe's Southwest Grill. And Five Guys Burgers and Fries, currently the fastest-growing restaurant chain in the U.S., according to restaurant industry researcher Technomic, made its debut on the ranking at 173. In 2000, three fast-casual chains made the Top 200.
A few other industries
Some industries showed broad weakness last year--like real estate agencies, where every company on the Top 200 saw a substantial drop in sales amid the U.S. housing market collapse. Many retailers declined, both in sales numbers and in their places on the ranking, thanks to the oncoming recession.
All told, 32 industries are represented on the Franchise Times Top 200, from auto and truck rentals to travel agencies. A few of these industries are less well-represented than they used to be--auto services chains took 15 spots on the 200 a decade ago. Today they hold eight. Retailers, which numbered 17 a decade ago, take 14 spots on the ranking.
Others have grown. Seven companies this year focus on commercial maintenance services, like ServiceMaster Clean and ServPro. These types of companies had little presence in the Top 200 in 2000. Likewise, there are eight home services companies on the ranking this year, double the number of a decade ago.
Only two companies are listed as elder care providers. Not a big number, but no such companies were on the ranking a decade ago and it's widely believed that elder-care focused franchises could be on a growth track as the population ages and demand for such services increases. Perhaps not surprisingly, both those companies--Home Instead Senior Care (97) and Comfort Keepers (172) both moved up several spots on the Top 200.