The 2010 Franchise Times 200: The largest franchise companies
While not always records, our list's sales are still top winners
By Jonathan Maze
It's safe to say that many franchises were happy to turn the page on 2009.
Companies on this year's Franchise Times Top 200, our annual ranking of the nation's largest franchise systems by systemwide sales, could not escape the recession's shadow last year. Falling revenues and closing units were common, even among these otherwise strong chains.
When adjusted to factor out companies added to or removed from the ranking for various reasons, this year's 200 took in $468.6 billion, a decline of just more than 1.1 percent, which is not surprising given the struggles last year of many industries in which franchising is common.
Some industries were hit harder than others. And few felt the recession as much as the nation's franchised hotels, which struggled with a decline in travel and which competed aggressively with one another on price. Revenue per available room, or RevPar--an industry standard that measures hotel company financials--fell almost across the board. Hotels' system sales suffered accordingly.
Marriott Hotels, for instance, the largest hotel chain by system revenue, was the 10th largest franchise system by revenue, as it has been the past couple of years. But its system revenue fell from $8.5 billion last year to $7.6 billion. Hilton, the 12th largest system, saw sales decline from $7.7 billion to $6.6 billion. Most hotel chains on the ranking, with only a couple of exceptions, ended up declining last year.
Real estate agencies, meanwhile, continued their own fall downward amid the worst housing market in modern U.S. history. That may be best demonstrated by the plummet of Coldwell Banker, which just two years ago was the 12th largest franchise system with $6.6 billion in estimated sales. It fell to No. 25 this year, with $4 billion in system sales. ReMax International, for instance, fell only one spot to No. 13 even though its system sales fell from $7.5 billion to $6.6 billion.
Some home improvement companies also showed declines. Prosource Wholesale Floorcoverings fell from No. 119 to No. 145. And One-Hour Heating and Air Conditioning fell to No. 194 from No. 171. And Decorating Den fell from No. 118 to No. 137.
Likewise, some staffing agencies struggled thanks as companies stopped hiring. Spherion fell from No. 46 to No. 54, and Express Employment fell from No. 59 to No. 78. These companies could rebound at least somewhat next year, amid higher demand for temporary staffing services.
All of this isn't to say that there isn't some good news on the ranking. Indeed, plenty of chains bucked the recessionary trend. This was particularly true toward the top of the ranking where many chains remarkably grew sales last year.
Little changed toward the top--the same 10 companies are in the Top 10 this year, even if a couple of chains switched spots. McDonald's, as it has every year, finished as the top-ranked franchise in the world, with more than $72.4 billion in system sales, a healthy $1.8 billion over last year. 7-Eleven, meanwhile, keeps growing. Its sales were $58.9 billion, nearly 10 percent higher than the year before.
KFC remained No. 3, thanks to its international business, which helped offset domestic weakness. And Burger King returned to the No. 4 position despite what was viewed as a weak 2009 for the burger chain. Rounding out the Top 10 were Subway, Ace Hardware, Circle K, Pizza Hut, Wendy's and Marriott.
Not only was there little change in the Top 10, there was little change in the Top 50, other than some companies moving a few spots up or down.
Flying up the ranking
The Top 200 is based on a combination of companies' self-reported sales and unit counts and our own research using mostly publicly available information or some of our own sources. We also examine companies from time to time, and subtract some based on whether they fit our definition of a U.S. franchise system.
For instance, a company must have 15 percent of its units in the U.S., and 15 percent must be owned by franchisees.
We also add a few, mostly as we get information previously unavailable. This year's top debut is Little Caesars, which is at No. 55 based on $1.8 billion in estimated U.S. sales. Likewise, this year we added UPS Store, another chain that had previously avoided our attention. It is No. 65, with $1.5 billion in estimated sales.
But a few chains have been surging up the ranking with no help from us, and their names won't likely surprise anybody. Five Guys continued to prove that it's one of the fastest growing restaurant chains in the country. The fast-casual burger restaurant was the biggest organic mover on the 200, having gone from No. 173 to No. 122. It has $499 million in system sales.
Five Guys' big move up the ranking demonstrates how unusual strong growth is this year. While its 40-percent growth was certainly strong, it came at a time when many chains are faltering, enabling it to move up the ranking quickly.
And, indeed, it was hardly the only company with a strong showing. The sub shop Jimmy John's looks poised to move into the Top 100, having moved up from 123 to 104 thanks to more than $602 million in system sales. Wireless Zone moved up from No. 209 to No. 166, making it on the Top 200 for the first time. And Old Chicago, which barely missed out on the ranking last year by finishing at No. 202, this year shot up to No. 172. Anytime Fitness likewise made its debut this year, at No. 189, continuing the quick growth for the 24-hour fitness chain.
An international flavor
Companies in the 200 have 440,308 locations, and roughly 68 percent of them are domestic. This is not unusual, and is consistent with the percentage of domestic units in the ranking over the years.
Yet a franchise system was more likely to do well last year if it had a substantial percentage of international locations, as exemplified by 7-Eleven's 10-percent growth and KFC's ability to withstand domestic problems, along with McDonald's worldwide growth and that of Burger King.
Indeed, perhaps the biggest reason that larger companies have been able to grow despite the economy is that they've focused attention on foreign markets, enabling them to expand even if they are largely saturated domestically.
International growth may be most pronounced in the convenience store industry, noted by growing companies 7-Eleven, Circle K and ampm stores. Of those three, Circle K has the smallest presence internationally, with 53 percent of its units in other countries. With the U.S. largely full of convenience marts and gas stations, many c-stores have little choice but to look at other countries and they've been doing so aggressively.
On average, franchise systems in this year's ranking are 85 percent franchisee owned, continuing a gradual increase in recent years--it was 82 percent two years ago, and much higher than the 77 percent average, according to the recent study on franchising by the U.S. Census.
This trend will likely continue. Many chains have been drifting away from company-owned locations to focus on franchising. Many chains, like Burger King, Applebee's, McDonald's, Jamba Juice and Yum! Brands various concepts have been selling off corporate stores to operators at a steady clip.
Among smaller companies, most notably Quiznos, there is an opposing trend in which systems open more company-owned locations to combat an inability to get financing for their franchisees. But most of these systems are too small to fully compete with the major refranchising efforts undertaken by the big boys.
Changing of the guard
Denny's is no longer the largest family dining chain in the country.
This has been a foregone conclusion for a couple of years. IHOP has been growing fast for the past decade, while Denny's, traditionally the larger competitor, has had its share of struggles--it has tended to close units, rather than open them. This year, IHOP finally overtook its rival, moving up from 48 to 39 on the ranking thanks to $2.5 billion in system sales.
Denny's saw sales decline to $2.1 billion and it thus fell from No. 42 to No. 44. For what it's worth, Denny's has regained at least a modest amount of momentum in recent months and plans to add more than 100 units this year. Nevertheless, the Grand Slam chain is now the underdog in the family dining war.