Top 100 Global Franchises 2010 Report
Franchises interested in growing their brand and elevating their standing in the global market are focusing their expansion plans on China which has a GDP of $7.8 trillion and is growing at a real rate of 9.8% per year1, making it one of the fastest growing economies in the world and a prime target for international franchise expansion. With increased affluence, an emerging middle class, and a franchise market that is expected to grow at US$100 per annum for the next few years2, China is an attractive market for franchises seeking global expansion of their brands.
Of Franchise Direct’s Top 100 Global Franchises, all of the Top 10 have expanded to China and have succeeded there. Nearly 40% of the remaining Top 100 Global Franchises have expanded into China. To maximize their success in this market these franchises were flexible in adapting to cultural preferences and to the Chinese regulatory environment.
Success in China
Yum! Brands comprises five successful brands, all of which are ranked among Franchise Direct’s Top 100 Global Franchises, and three of which have made the Top 10. KFC, Pizza Hut and Taco Bell ranked in the Top 10, while Long John Silver’s and A&W Restaurants ranked at 20 and 23 respectively. With more than 37,000 restaurants in over 110 countries, mainland China is Yum! Brands’ number one market for new company restaurant development worldwide. In 2009, operating profit for the China Division of Yum! Brands was $602 million and the company opened more than 500 new restaurants last year in mainland China. Yum! Brands's position in China was solidified with the success of its KFC and Pizza Hut brands and the newer East Dawning and Pizza Hut Home Service concepts. The company now boasts about 3,000 restaurants in China. With the fastest growing economy in the world, China is a region no international franchise company can afford to ignore.
Women in the Top 100
As franchising continues to grow, more women are beginning to expand their businesses through franchising. Historically, the franchise industry has been dominated by men. Over the last few years there has been an increase in the number of women making the transition from running a prototype unit to creating a franchise system but there are still a higher percentage of men entrepreneurs than women. This percentage varies from country to country due to differences in culture and customs regarding female participation in economic activity. The percentage difference is lower in some countries such as Germany and Switzerland. In innovation driven countries, the general rule of thumb is that men are twice as likely to be involved in early-stage entrepreneurial activity than women3.
The women franchisors represented in Franchise Directs Top 100 global franchises have created franchise programs that succeed on an international level through a clear business plan and a defined identity.
In the late 1920s Merle Norman was one of the first women to not only run her own business but also recognize the opportunities available to expand the business through franchising. Decades before working women were the norm, Merle Norman gave hundreds of women the opportunity to achieve business success by owning and operating their own studios. From a single studio, Merle Norman Cosmetics has grown to a system of over 1700 units and has been ranked number 73 in Franchise Direct’s Top 100 Global Franchises.
Jazzercise, at number 49 in Franchise Direct’s Top 100 Global Franchises, is a dance fitness program founded by Judi Sheppard Missett. Judi turned her love of jazz dance into a worldwide dance exercise phenomenon. This international franchise business hosts a network of 7,800 instructors teaching more than 32,000 classes weekly in 32 countries. Jazzercise has experienced tremendous growth in the last year with the signing of nearly 300 new franchisees. The founder, Judi Sheppard Missett, was also appointed to the Women Presidents’ Organization (WPO) Board of Directors in 2008.
The Importance of Lending
Access to capital
Entrepreneurs are facing more challenges as many major banks have curtailed lending in recent times due to the economic downturn. Restrictions on financing have caused a drop in the number of new franchisees signing franchise agreements.
The relationship between lending, jobs created by franchising and economic output can be summed up by the following: For every million dollars of lending obtained by franchised small businesses, 34.1 jobs are created and $3.6 million in annual total economic output is realized. So for every million dollars in lending not obtained by franchises, 34.1 jobs and $3.6 million in output will be lost.
FRANdata projected that franchise systems across all industries for the year (excluding lodging) will require total capital of $12.7 billion and total borrowings of $8.4 billion.
The following table offers a breakdown of the average estimated initial franchise investment per industry4:
|Industry||Average Initial Investment|
|Automobile & Truck Dealers||$212,933|
|Commercial & Residential Services||$179,112|
|Gasoline Service Stations||$854,00|
|NEC – Not elsewhere classified||$92,001|
|Retail Products and Services||$240,206|
|Table/Full Service Restaurants||$1,082,941|
|Average Initial Investment||$390,152|
Of Franchise Direct’s Top 100 Global Franchises, over 30% of the franchises ranked offer franchisees direct financing, while a further 30% offer to help arrange third party financing. The level of aid for third party financing depends entirely on the individual franchise. Sylvan Learning, which ranks at number 64 in Franchise Direct’s Top 100 Global Franchises, is so concerned about falling franchise sales and the inability of prospective franchisees to get financing that the company has now begun to offer financing itself.
The Small Business Association (SBA) provides a number of financial assistance programs for small businesses and franchises that have been specifically designed to meet key financing needs. Twenty-two per cent of the franchises from Franchise Direct’s Top 100 Global Franchises are deemed eligible for streamlined and expedited loan processing through the Small Business Association. SBA’s central registry of franchisors contains information on franchisors whose current franchise or license agreements are eligible for SBA financing. SBA loan transactions have a government guarantee and they often have a higher advance rate then loans obtained from other sources. This means that a prospective franchisee needs a smaller cash advance to qualify for the loan.
New Franchise Programs
Many franchisors have recognized the difficulties faced by franchisees when attempting to secure financing. For this reason many franchisors are altering their franchise concepts in order to make them more affordable. Cartridge World, ranked at number 34 in the Top 100, has developed a new store concept that allows a franchisee to operate from a 500 sq ft space instead of the traditional 1200 – 1600 sq ft location. A group of the master franchisees realized there was no reason that the cartridges couldn’t be refilled in the larger stores and sold in the smaller stores, effectively reducing fixed costs such as labor and rent and also bringing down the initial franchise investment costs. These smaller locations have the dual advantage of offering a lower costing franchise whilst creating a more flexible model to entice franchise expansion.
The IFA predicts that the growth rate of the franchise industry in 2009 will be surpassed in 2010 both domestically and internationally. Most major international economies will recover in 2010 which will in turn aid the economic recovery in the U.S. Growth will, however, still be slow as franchises struggle to overcome low consumer confidence, high unemployment and restrictive credit markets. The quick service restaurant industry is forecast to experience the most growth as is reflected in the large number of quick service restaurants ranked among Franchise Direct’s Top 100 Global Franchises.
The franchise industry has weathered a long and difficult time economically and these Top 100 Global Franchises can truly be called the best in the system having, through innovation and streamlining of their operations, continued to succeed.
1 IFA, "Insider", Vol 14, Issue no. 25, Dec 7,2009
2Franchising & Licensing Association (Singapore), franchiselicenseasia.com
3Global Entrepreneur Monitor, Global Report 2009,www.gemconsortium.org/about.aspx?page=pub_gem_global_reports.
42010 Franchsie Business Economic Outlook, prepared by PriceaterHouseCoopers for the IFA.