Ranking the biggest brands in franchising
The 10 largest franchise brands roared back in 2016 after losing sales the prior year for the first time in the history of the Franchise Times Top 200+.
Adding an impressive $7.8 billion in combined global sales during 2016, the top 10 companies grew sales by 2.8 percent. The other 190 big franchisors added $12.4 billion in new sales, a 3.9 percent jump that’s still impressive, but down sharply from the previous year.
In total, the 200 largest franchise brands are growing much faster than the overall economy with an annual sales increase of 3.4 percent or $20.3 billion. The results are a solid improvement from last year’s tepid 2.2 percent gain, and double the current U.S. inflation rate of 1.7 percent.
McDonald’s once again provides this year’s marquee statistic with a huge $2.3 billion surge in sales after its $5 billion-plus drop the prior year dragged down average sales numbers for the top 10 and quick-service restaurant categories. Even though its sales were up $43 million over the prior year, Wendy’s failed to match the larger gains of its rivals and, consequently, fell out of the top 10. It was replaced by fast-growing Domino’s Pizza, which is now the ninth largest U.S.-based franchise.
As more of the largest brands run out of available turf in their home country, the 200 largest franchise brands continue their multi-year pivot toward international markets, with 11,124 new overseas units added during 2016 compared with fewer than 926 new units in their home markets.
All but two of the 10 largest U.S.-based franchisors posted sales gains during 2016, with Subway and Pizza Hut as the only two to see declines. With 45,936 units, Subway’s global sales declined 0.6 percent or approximately $100 million, maintaining its No. 5 ranking. Holding the line at No. 7, Pizza Hut’s sales dipped two-tenths of a percent to just more than $12 billion.
Eclipsing $85 billion in annual sales, McDonald’s retains its spot atop the Franchise Times Top 200+ with its 2.8 percent sales gain. The international burger giant now has 36,899 units, the third largest franchise by unit count behind 7-Eleven (61,805) and Subway (45,936). Remaining top 10 fast food giants, KFC at No. 3 and Burger King at No. 4, boosted their annual sales by 2.3 percent and 5.2 percent, respectively.
At a staggering 61,805 units, 7-Eleven remains the second-largest franchisor by sales. It posted $82.5 billion in sales during 2016, a 1.2 percent gain, and added 3,094 new units during the year.
Ace Hardware, with 5,092 units and more than $15 billion in sales, retained its No. 6 spot in the Top 200+. RE/MAX also held steady at No. 8 with $11.5 billion in sales, an 11.8 percent jump that’s reflective of other real estate gainers riding historic increases in U.S. home prices and sales activity.
Domino’s Pizza is the newest entrant to the top 10, up two spots from the previous year to No. 9, swapping places with Wendy’s. At $10.9 billion, that’s an extra billion in sales for the fast-growing pizza delivery giant.
Marriott Hotels & Resorts retained its No. 10 spot, at nearly $10.8 billion in sales, an increase of $750 million at year-end 2016 compared with 2015. Like real estate, nearly every major franchised hospitality brand saw healthy sales increases during the year.
Outside of the 10 largest franchises, many of the largest casual restaurants struggled as a sign of the times. Applebee’s slipped one rung down to No. 26 on a 6.2 percent decline in sales. Chili’s and TGI Fridays followed suit, down 1 percent and 1.8 percent, respectively. Denny’s provided a ray of sunshine in the casual segment, up 3.7 percent for the year.
Fitness brands bulked up across the board, with Planet Fitness up a staggering 26.7 percent and Anytime Fitness growing an impressive 13.6 percent. Wingstop and Valvoline Instant Oil Change were two other standouts, growing their annual sales by 18.4 and 19.7 percent, respectively.
While the pendulum has swung in both directions over the decades, many franchisors have been selling company-owned units to their franchisees or exclusively developing franchisee-owned units.
This year’s Top 200+ marks an historic high-water mark in refranchising, as 108 of the 200 largest franchisors have 95 percent of their total unit counts owned by franchisees. Sixty-seven of the Top 200 are entirely franchised, with no company-owned units. A full 143 brands in this year’s ranking are more than 80 percent franchised.
Ten years ago, 95 of the Top 200 were 95 percent franchised or more, and 66 were 100 percent franchised. In total, 89.6 percent of all Top 200 brand locations are now franchised, up from 85.7 percent the previous year.
Continuing and accelerating another mega-trend in franchising, the Top 200 franchises added only 926 new units in the United States during 2016, an increase of just 0.3 percent, while adding 11,124 new locations outside of the U.S.—a six percent gain.
Looking abroad, 93.7 percent of the Top 200’s international units are franchised, compared with 87 percent in the U.S. This disparity reflects differing strategies outside of the U.S., where franchisees tend to own larger territories or even control entire countries for a given brand.
Globally, U.S.-based franchises added 12,050 new units total during 2016, an increase of 2.4 percent and a slowdown compared with the previous year’s rate of 3.1 percent.
How we rank the top 500 franchises
The Franchise Times Top 200+ is an annual ranking of the 500 largest franchise systems in the United States by global systemwide sales, based on the previous year’s performance.
In a five-month research process and building upon a database that began in 1999, our research team uses a combination of companies’ voluntary reports and publicly available data, including the franchises’ most recent franchise disclosure documents and Securities and Exchange Commission filings.
To qualify, a company must be a legal U.S. franchise. Franchisees must own at least 15 percent of the company’s total units. The company must also be based in the United States, or have at least 10 percent of its total units in the United States.
Systemwide sales is defined as the total sales for both franchise and company units. Those sales figures should represent sales to customers, and not corporate sales to franchisees or prospective franchisees, such as royalty revenue or franchise fees. Other revenue not directly related to franchising should not be included.
If two companies reported the same systemwide sales, the higher ranking is given to the company with the most units. Preference is also given to companies that voluntarily report their systemwide sales, rather than those companies for which we must estimate the sales figures.
Franchise Times’ estimated revenue for hotels is based on a formula multiplying the chain’s revenue per available room (RevPAR) by the number of rooms and the number of days in the year. RevPAR comes from the company, or from industry estimates.
We estimate real estate companies based on 2.5 percent of their reported sales volume. Real estate companies report sales based on total volume of homes sold. So if a home is sold for $200,000, it would be listed as $200,000 in revenue. Franchise Times’ estimate would count $5,000 in revenue earned as a commission from the sale.
We estimate travel agencies based on 12.5 percent of their total sales volume. Like real estate companies, travel agencies report sales volume based on the value of the vacations sold, rather than their commissions.
Research begins for next year’s project in late April. To submit your brand’s numbers or for more information, contact Franchise Times Controller Matt Haskin, who leads the research effort for Top 200+, at email@example.com.