Where Does Growth of the Largest Franchise Systems Stand?

Franchise Systems

If you are curious about the growth of the most mature and largest franchise systems in the United States, take a look at a new report by franchising data provider FranchiseGrade.

Using its database of franchise disclosure documents, FranchiseGrade looked at what happened from 2008 to 2015 at 243 franchise systems that had filed a franchise disclosure document continuously from 2011 to 2015. And that had outlets in operation since 2008 and at least 25 outlets at the end of 2014.

For people interested in understanding franchising, the study’s results are informative.

Fast Food is the Prototypical Industry

The report found that:

  • Quick-service restaurants account for 24 percent of large, mature franchise systems.
  • The next most common industry for franchising is personal services, which makes up 21 percent of systems.
  • The third most common industry for franchising is commercial and residential services, which comprises 14 percent of systems.

Franchise Chains are Much Larger in the Quick Service Industry

The report found that chains in the fast food industry had an average of 2,042 outlets, as compared to the next highest, real estate, with 1,068.

The large size of chains in the quick service restaurant industry means that even though quick service restaurant chains comprise only about one quarter of franchise systems, they account for more than four-tenths (44 percent) of the outlets. The next largest industry, personal services, only accounts for 12.3 percent of outlets, according to the report.

Large Franchise Systems Have Been Growing

According to the report, the number of outlets at mature chains rose by 14 percent between 2008 and 2014.

Outlet Turnover at Large Franchise Systems is High

The study found that 127,008 outlets were opened during the seven-year time period of the study, while 163,931 outlets turned over (were transferred, terminated, not renewed, reacquired or ceased operations). As a result, the increase in the gross number of outlets was much larger than the rise in the net number of outlets.

Roughly 39 percent of the turnover took the form of transfers of the outlets to new owners, which means that twice as many outlets were opened as were transferred.

Of the just under 100,000 outlets that were terminated, not renewed, reacquired or ceased operations, 47 percent ceased operations, while 37 percent were terminated, 8 percent were not renewed and 7 percent were reacquired.

Fast Food Image via Shutterstock Comment ▼

Scott Shane Scott Shane is A. Malachi Mixon III, Professor of Entrepreneurial Studies at Case Western Reserve University. He is the author of nine books, including Fool's Gold: The Truth Behind Angel Investing in America ; Illusions of Entrepreneurship: and The Costly Myths that Entrepreneurs, Investors, and Policy Makers Live By.

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