Multi-Unit Franchisee Magazine Special Edition | Page 8
MULTI-UNIT
NEED TO
KNOW
F
or the past few years you have heard
me note that the majority of franchised units in the U.S. are owned
by multi-unit operators. With more than
400,000 franchised units in the country,
multi-unit operators control about 53 percent
of those units. That’s impressive, and the
percentage controlled by multi-unit operators is rising. This growth is a consequence
of many brands focusing their development
models on multi-unit development packages over single-unit programs.
Today, FRANdata’s database shows
the following breakdown of multi-unit operators (MUOs):
These are the “known” franchisees
in our database. While we try to keep up
with the changes in each franchise system,
our database does not include current
data for all of today’s 3,500-plus brands.
Therefore, each category understates the
actual total. Since our database is more
current with the larger brands and most of
the smaller to medium-sized brands, any
under-counting is primarily with the lessestablished brands, which are less likely to
have many multi-unit operators.
Statistically, we think we have more
than 90 percent in each category. Using
this 90 percent confidence level leads us
to good representative estimated counts.
Thus, in total, we believe there are more
than 40,000 multi-unit operators in the
U.S. With the number of units they control
and the brands and sectors they operate in,
that puts the combined annual revenue of
multi-unit operators at more than $100
6
Buyer’s Guide
What’s DRIVING
Multi-Unit GROWTH
Stats point to continuing multi-unit expansion
billion. There’s some serious operational,
business, and political influence in that figure.
We know the number of units they
control is growing. But how is the number
of multi-unit operators changing? For that,
we can turn to our actual database counts.
Assuming the actual-to-estimated changes
are consistent, the actual counts should
reflect about the same percentage change
per category that our estimated numbers
would show.
In a three-year span, we’ve seen a 17
percent increase in entry-level multi-unit
operators. That’s certainly consistent with
our analysis of the development models
franchise brands have been using over the
past few years. To wit, entry-level multi-unit
operators’ average annual growth of nearly
6 percent slightly exceeds the growth of
franchised units generally, which has been
expanding by about 5 percent per year.
Much more interesting is the expansion of the larger categories of multi-unit
operators. In the three-year span, those
categories expanded about 25 percent. Even
more interesting is the consistency with
which each category expanded, ranging
between 24 and 28 percent.
Several obvious trends are affecting
these outcomes. Multi-unit development
models became a common form for expansion only in the past 20 years. In a life cycle
sense, the data confirm that this model is
still solidly in a growth mode. And although
many franchisors have had to cancel contracts for development, especially for the
second and third units within the contract
timelines, these data suggest that many
second, third, and fourth units have been
added in recent years.
We also can’t ignore the impact that
one of the “big two” small-business challenges—capital access—may have had on
the growth statistics of multi-unit operators (the other, of course, is unit sales in a
soft economy). Most banks have tightened
their underwriting borrower qualification
standards to include existing experience in
the industry. This undoubtedly has led to
more multi-unit operators compared with
new single-unit operators.
Finally, it should be noted that the
growth of multi-unit operators is happening,
in part, from the exiting of some single-unit
operators. Transfers are on the rise across
many industries. As I’ve noted previously,
multi-unit operators increasingly are the
buyers of existing units. It makes sense,
since they are in the best position to evaluate
the current operations and future potential
of an existing unit.
All of this suggests a continuing
rise in influence of the multi-unit operator
within franchising. Want further evidence?
Franchise Update Media’s Multi-Unit
Franchising Conference has set attendance records in the past several years.
Looks like I’ll be seeing more of you in Las
Vegas next year!
Darrell Johnson is president and CEO of FRANdata,
an independent research company supplying
information and analysis for the franchising sector
since 1989. He can be reached at 703-740-4700
or [email protected].
MULTI-UNIT BUYER’S GUIDE 2015
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