Multi-Unit Franchisee Magazine Special Edition | Page 6
MULTI-UNIT
NEED TO
KNOW
Buyer’s Guide
MUOs ON THE RISE
M
ulti-unit franchise operators are about to exceed
the 55-mph speed limit:
we can now officially say
that they control 55% of all franchised units
in the U.S. The 80/20 rule also applies:
those 55% of all franchised units in the U.S.
are controlled by 20% of all franchise unit
operators. Both are records.
The steady expansion of multi-unit dominance
started in the late 1980s, so it is relatively
recent in the context of the franchise business model. As recently as eight years ago,
a majority of units were controlled by singleunit operators. The pace of change has been
consistent and rather predictable, with a current rate of change of about 1% each year.
There are two big drivers of this change.
The first is that we raised a generation of
franchisees with growth on their minds.
They pushed through the older “buy a job”
mentality with business plans aimed at multiunit expansion from the time they started in
business. The second driver is cooperative
franchisors, who went from being concerned
by too much franchisee power to actively
designing development programs around
multi-unit models.
Some of today’s largest franchisees are
NPC International (1,158 units, mostly
Pizza Hut); Target Corp. (1,147 units, mostly
Pizza Hut Express); Heartland Automotive
Service (529 units, mostly Jiffy Lube); and
Harman Management Corp. (466 units, mostly
QSR brands).
As with these four franchisees, industries
with the highest concentrations of multi-unit
franchisees are in food. As the table shows,
more than 82% of franchised QSR businesses
are controlled by multi-unit franchisees, followed by restaurants (sit-down) at 77% and
baked goods at 72%. Also of note is the rise
of some non-food industry classifications,
such as business-related, automotive, real
estate, clothing retail, and education-related.
4
4
Top 10 Industries by
MUF Control
% Multiple Units
QSR
72.1%
Beauty-related
66.4%
Frozen desserts
57.1%
Real estate
40.8%
Clothing & accessories
38.3%
Education-related
37.8%
f the more than 40,000 multi-uni
O
franchisees, 7% (about 2,700) operate
units across several brands. While that
doesn’t seem like a high percentage, it is
growing quickly.
•
f the roughly 450,000 total business
O
format franchised units in the U.S., about
360,000 are represented in the sample.
Compared with similar sample from a few
years ago, it shows that not only do we
have a growing concentration of units
controlled by multi-unit operators, we
have a growing concentration of units
controlled by larger multi-unit operators.
57.9%
Retail food
•
58.0%
Automotive
ased on a large sampling of franchised
B
businesses for which gender information
was available, 28% were women-owned,
and almost 40% of these were controlled
by multi-unit franchisees.
65.6%
Business-related
•
77.1%
Baked goods
Here are some more statistics that shed light
on the profile of multi-unit operators.
82.4%
Restaurants (sit-down)
ADDITIONAL FINDINGS
IT’S A GOOD
TIME TO BE
A MULTI-UNIT
OPERATOR!
On the other end of the spectrum, less than
5% of franchised travel businesses are controlled by multi-unit franchisees, followed by
computer products and services (5.7%) and
photographic products and services (8.5%).
Perhaps the most important point is that multiunit franchising has penetrated all industries
where the franchise business model is found.
There are some interesting geographic distinctions as well, creating a sort of North-South
divide. Only four states have a majority of
units in the hands of single-unit franchisees:
Maryland (51%), Vermont (52%), New Jersey
(56%), and Montana (57%).
West Virginia, at 64%, has the highest concentration of units controlled by multi-unit franchisees.
All other states with high concentrations of units
in the hands of multi-unit franchisees are in the
South, including: Arkansas, Mississippi, Kentucky,
and Alabama, each with 62%.
Across all units, the average multi-unit franchisee owns 5 franchised locations, up from
about 3.5 in 2007. This obvious skewing is
the result of larger franchisees adding units
at a faster relative pace than single-unit and
smaller multi-unit operators. Although the
economy has been bad for most companies,
it has greatly assisted this trend toward concentration. In the 2008–2010 period, many
single-unit operators either sold to larger operators or closed because of sales and financing pressures. While the sales levels have
improved somewhat, in the past two years
lenders have concentrated their lending at
the lower end of the business risk spectrum,
which, of course, is represented by none
other than multi-unit operators. Despite the
economic obstacles, it’s a good time to be
a multi-unit operator.
Darrell Johnson is CEO of
FRANdata, an independent research
company supplying information and
analysis for the