The 2006 Franchise Times 200: The largest franchise companies
Rankings abound in our status-hungry culture, feeding our collective obsession with identifying the best of the best. From sports to politics, geography to economics, it seems no facet of our society is resistant to measurement and ordering. Rankings range from the largely objective richest person in the world (Bill Gates), to the more subjective best colleges in the country (Princeton), to the decidedly morbid, and arguably more useful, most dangerous food item to consume in close proximity to a hungry bear (undetermined due to a lack of surviving witnesses).
And so it is in good company that we unveil our annual Franchise Times Top 200 ranking, the authoritative snapshot of the largest 200 U.S.-based franchise companies as measured by sales across all company and franchised units around the globe. Why the Top 200? Frankly, we’re fond of the alliteration, though as in past years, we’ve gone to the trouble of compiling an “Up & Comers” ranking of the next largest 100 companies as well. That’s 300 companies, and that’s a lot of data.
Of course, the franchising universe is huge and growing, with new franchising businesses–and business models–popping up both here and abroad at a blistering pace. Our intention with the Top 200, then, is less about drawing distinctions between No. 1 and No. 200 (or No. 300, for that matter) than it is in celebrating the collective growth of franchising as a whole.
So, just how blistering was the collective growth of this year’s Top 200? Blistering may be too strong a word, but with total revenue in 2005 of about $418 billion, these companies managed to increase sales a very respectable 7 percent over 2004. The ranking includes just five new companies this year, in addition to six that made their way up from the aptly named “Up & Comers” list of last year. Of the remaining 189 companies, 68 fell in the ranking, 18 stayed put, and 103 managed to climb their way up.
That $418 billion in revenue was generated by 402,647 units worldwide, with better than four-in-five of those owned and operated by franchisees. The Top 200 added over 13,000 units over the course of the year, representing a 3.4 percent growth rate over 2004. Significantly more franchised units were added than company units–11,667 versus 1,515–and while the net addition of domestic units was greater than that of international, the rate of growth for units abroad easily outpaced that of locations in the United States.
To assess the health of this growth it’s helpful to put these numbers in context and to recall just what kind of economic environment these companies operated in last year. Overall the U.S. economy managed to expand at about 3.2 percent in 2005, producing $12.5 trillion worth of goods and services. Consumer spending, including spending on such things as housing and medical care, totaled some $8.7 trillion last year, and the Census Bureau estimates that over $4 trillion was spent domestically on retail and food service sales.
Of course, 2005 will perhaps be most remembered for the destruction–both to property and human life–wreaked by hurricanes Katrina and Rita on the Gulf Coast. In addition to causing untold damage, these storms shut down an already stressed oil refinery infrastructure, causing gasoline prices to spike above $3 per gallon in late summer and to remain well above $2 for the balance of the year.
While dramatic gas prices increases took their toll on consumer sentiment last year, an unemployment rate that continued to drop coupled with house prices that continued to rise allowed discretionary spending to continue to flow. Nationally, median home prices rose more than 13 percent in 2005 on top of 12 percent gains seen the year before, rates about double that seen in any of the preceding 20 years. Homeowners are estimated to have tapped some $600 billion worth of equity from their homes in 2005, billions of which found its way into business coffers.
The benefits of the sustained housing boom were felt far and wide, but it’s hardly surprising that those Top 200 companies involved in real estate services performed especially well. The Federal Reserve Board calculates that outstanding residential debt jumped 14 percent to nearly $10 trillion by the end of 2005 while the country added over 2.2 million homes to the housing stock. Homeownership rates reached 70 percent and real estate professionals were there to take their cut.
The Top 200 sector with the biggest sales jump, however, comprises companies that toil in the travel services profession. Increases in business travel resulting from the continued demands of globalization coupled with the deep pockets of corporations flush with profits played a role here, as likely did the prevalence of home-equity funded vacations. These same trends helped drive nice revenue gains at hotel and lodging companies as well.
Collective sales growth for the Top 200’s restaurants, on the other hand, look anemic by comparison. And yet, these companies continue to rule the ranking, with restaurants accounting for 41 percent of all Top 200 sales, 40 percent of all units and six of the ranking’s top 10 largest companies. Better than one-in-three Top 200 companies operate restaurants.
In general, restaurant companies began 2005 in relatively good shape, benefiting from the same home-equity induced spending enjoyed by the larger economy. But rising gas prices began to hit restaurants–casual restaurants in particular–especially hard, and we began to hear the term “tradedown” thrown around by way of explanation.
The theory suggests that cash-strapped diners will forego the more expensive offerings of casual restaurants for the cheaper, improved fare of their QSR brethren. The Top 200 data suggests otherwise, with aggregated systemwide sales growth at both casual and quick-service restaurants of about 5 percent in 2005. With 27 percent growth in revenue, the handful of fast-casual companies on the ranking reinforce the notion that this is the burgeoning restaurant sector.
Finally, no Top 200 analysis would be complete without a nod to the mighty top 10, nine of which held that distinction last year as well. Though their collective growth rate over 2005 trailed that of the larger list, these companies were responsible for 37 percent of the Top 200’s increased revenue, 41 percent of its total unit growth and over 70 percent of its international expansion.