Franchise Index Ends Tough Year Down 9.5 Percent
Last year was more than a little volatile for public franchisors. According to the Rosenberg International Franchise Center, the 50 public franchise companies ended the year down 9.5 percent. That’s behind the general market, as measured by the S&P 500, which was down 6.2 percent in the last 12 months.
The year was a see-saw for the RIFC Index that tracks those public franchise companies. It was down 4.2 percent in the first quarter, up 1.2 percent in the second, up 5 percent in the third quarter. Then, the index tumbled 8.9 percent in the fourth quarter, along with the rest of the market in a major correction brought about by trade war tensions, political gridlock and fear of the next downturn.
According to E. Hachemi Aliouche, director of the Rosenberg International Franchise Center at the University of New Hampshire’s Peter T. Paul College of Business and Economics, there was some rosy news from the index in that ugly fourth quarter.
“In Q4, the S&P 500 Index dropped 14 percent, and the Nasdaq Composite lost 17.5 percent of its value, whereas the RIFC 50 Index only dropped 8.9 percent,” said Aliouche.
While not doing quite as terrible as those other indexes isn’t great news, the index also showed some strong performances. Despite the challenges that lead to declines for 35 of the 50 brands in the index, some brands did very well.
“Restaurant operator and franchisor Wingstop (NASDAQ: WING) added over 80 percent to its market value in 2018, while fitness centers operator and franchisor Planet Fitness’ (NYSE: PLNT) market value jumped by over 50 percent,” said Aliouche.
One of the biggest trends in the space was the frantic M&A across the index, mirroring that seen across the franchise sector at large. La Quinta was acquired by Wyndham Hotels & Resorts, Jamba Juice was bought by Focus Brands, and Sonic acquired by Inspire Brands, the Roark-backed ownership group that holds Arby’s, Buffalo Wild Wings and R Taco—adding to those acquisitions from 2017.
But don’t start shorting the franchise sector just yet. The first quarter is already off to a rosy start and if history is any measure, the RIFC will get back to it’s usual place ahead of the broader market.
Since its inception in 2000, the RIFC has returned 241 percent while the S&P 500 has returned 79 percent.