The Top 100 franchises are atypically large when it comes to size. While the median unit count for the Top 100 is over 2,000, over half (57%) of franchise systems in the U.S. have 50 or fewer locations according to Franchise Grade. In fact, franchises with less than 100 units account for 71% of the franchise systems in the U.S. – the world’s largest franchise market.
| Franchise | 2018 Rank | 2017 Rank |
McDonald's | 1 | 1 |
KFC | 2 | 2 |
Burger King | 3 | 3 |
Pizza Hut | 4 | 7 |
7-Eleven | 5 | 5 |
Marriott International | 6 | 8 |
RE/MAX | 7 | 11 |
Dunkin' Donuts | 8 | 17 |
InterContinental Hotel Group | 9 | 12 |
Subway | 10 | 4 |
The Top 10
The top 3 stayed the same from last year: McDonald’s, KFC and Burger King, but it shouldn’t be a surprise. Food franchises have always led the way in franchising because of the relative ease of replication from one place to another, once recipes and menus are developed.
Technology is also playing a role in food franchises continuing in a growth pattern. A point that Robert Cressanti, International Franchise Association (IFA) president and CEO, noted in a November 2017 interview to the Wall Street Journal.
“The food sector is continuing to grow,” he said. “It’s easily accessible. People are creating interlinks with technology in ways they didn’t before, so you have app ordering, you have delivery of food in vehicles that bring it in temperatures unachievable before. You have people putting a lot of investment and thought into appealing to the consumer and particularly into millennials, who are becoming a greater economic force.”
As for the rest of the franchise industries, Cressanti opined that technology is something that needs to be woven into the fabric of the franchise—just like in food service.
“One of my CEOs put it correctly. It doesn’t matter what franchise business you’re in. If you’re not a technology company along with being a hotel company, a lodging company, a doggy day-care company, a food company, you’re not going to be in business long. There’s a lot of innovation coming, and it’s pushing through to making convenience the last mile in a way that has changed dramatically over time.”
| Category | Number of Franchises |
Food-Related | 40 |
Automotive | 12 |
Cleaning | 7 |
Grocery or Convenience Store | 6 |
Gym and Wellness | 6 |
Hotel and Travel | 6 |
Home Improvement | 5 |
Health and Beauty | 4 |
Real Estate | 4 |
Professional Services | 3 |
Child Education | 2 |
Printer, Copying and Sign | 2 |
Mailing and Shipping | 1 |
Pet | 1 |
Senior Care | 1 |
Top 100 Franchises by Category
The Rest of the Top 10
A number of years ago, Yum Brands had to take special measures to help KFC turnaround flagging sales. Since then, the franchise has seen consecutive quarters of same-store sales growth each quarter since the third quarter of 2014. Now, it’s Pizza Hut’s turn.
The third quarter of 2017 marked Pizza Hut's fifth consecutive quarter of positive same-store sales growth. “Don't expect any heroics, but we do believe we can, by getting the foundations in place and doing the right things, continue to progress our Pizza Hut U.S. performance,” CEO Greg Creed said during the earnings conference call for the quarter. It’s a major step in a positive direction for a brand some analysts were suggesting Yum Brands divest because of its drag on company earnings.
Fifth is 7-Eleven, which continued to diversify its product offerings in the last year by expanding its selection of private brand wines, among other new options. The convenience store is followed by hotelier Marriott International and RE/MAX, a world leading franchisor of real estate brokerage.
Dunkin’ Dounts is up #8 after a year in which the company rededicated itself to simplicity, a plan that helped McDonald’s recapture its magic a few years ago. In fact, Dave Hoffman, a 22-year McDonald's vet who in 2016 became Dunkin’ Donuts U.S. president said that year, “Dunkin’ is more complex than operating a McDonald's.” As a result Dunkin’, which is also experimenting with shortening its name to reflect new brand positioning, cut about 10% of its menu in early January 2018.
The Top 10 is rounded out by International Hotels Group and Subway, which is beginning its very own “fresh forward” brand transformation project that president and CEO Suzanne Greco says is “about the full customer experience.”
Corporate-Level Reorganizations Continue
Towards the end of 2016 and into 2017, franchise conglomerate Yum! Brands and McDonald’s spun off part of their operations in an attempt to better stay on top of rapid changing consumer tastes and habits.
This past year, the spinoff bug bit the hotel industry (again).
In August, Wyndham (#16) announced its plans to spin off its hotel division into Wyndham Hotel Group and retain its timeshare operation under Wyndham Worldwide in order for both companies “to maintain a sharper focus on its core business and growth opportunities.”
The main reason for the change is because of the differences in the ownership of property, and the complications that arise from trying to manage both types of operations under one entity. With timeshares, a company such as Wyndham owns and is liable for much more of the investment. With hotels, franchisees and management companies assume a great deal of responsibility for the assets.
“The two business models, the hotel business model and the timeshare business model, are drastically different,” says Amy Gregory, an assistant professor at the University of Central Florida’s Rosen College. “When you put the two together, from an investor’s perspective, things get a little bit cloudy…until the timeshares get sold to consumers and that can take, depending on size of product and pace of sales, [the company] can carry that liability for real estate and construction for 10 years. The two balance sheets look really different.”
Wyndham is following the path already taken by other hoteliers like fellow Top 100 franchisors Marriott (#6) and Hilton (#21), which have also spun off timeshare operations in recent years.
Hotel franchises have made more moves recently too. In January, Wyndham announced its intention to acquire La Quinta’s hotel management business. The deal, to be completed in the second quarter of 2018, will bring Wyndham’s hotel portfolio to over 9,000 properties across 21 brands. Marriott also bought Starwood Hotels and Resorts in the past year.
Building a Franchise System
As mentioned at the beginning of the report, the franchises of the Top 100 are anomalies when it comes to system size. Despite their vast diversities, all of these franchises have something in common—they had to survive their initial growth phase. What’s it like when you’re a new franchise just beginning the process of adding new units?
Top 100 aspirant children’s education franchise Building Kidz began franchising in 2015. At the beginning of 2017, it had 4 locations open. It ended the year with 8 open. While it doesn’t seem like a lot at first glance, that’s a 100% increase in number of units—an increase that comes with a special set of challenges. The franchise also increased its units sold by over 300% by the end of the year.
Michael A. Peterson is the Director of Franchise Development for Building Kidz. He shares with us the perspective of a franchise just starting its expansion.
What’s it like growing 100% (by number of units) in one year?
All I can say is that this is an exciting time for us. Thankfully, the growth didn’t blindside us, so we have the infrastructure in place to support all the franchisees on board and more. Everything Building Kidz does is focused on one thing: to touch the lives of 1 million children in our founder’s lifetime without compromising the quality of care for even one child. We do this using our own schools, our franchised campuses, as well as dedicating 25% of the franchisor’s profits to underprivileged children.
What has been the biggest challenge to franchising your brand? How have you overcome it?
Building Kidz is a well-known brand in Silicon Valley, with an established history of providing top-notch care to children in the area. As we began to expand into areas where the brand was unknown, of course we faced the challenges of name recognition. Thankfully, we have been able to use our 40-point marketing plan to help our franchisees raise both awareness and adoption of our philosophies before they ever open their doors.
How do you decide which areas to franchise next? Is it more corporate-driven or is it driven more by where prospects contact you from?
We are currently on a national expansion plan, so we are allowing our growth pattern primarily to be driven by where prospects contact us from. Having said that, however, for some key geographies we are using a combination of geo-targeted SEO as well as working with business coaches in the area.
What was the tipping point that let you know franchise expansion was right for Building Kidz?
As someone who has many years in the franchise industry, I had an instinct about Building Kidz from the moment I first met with the founders. I knew my instinct was correct, however, when we did our first trade show, and the booth constantly had a line in front of it, even though we hadn’t had time to develop a trade-show booth at all!
What are your expansion plans for 2018?
We have several franchisees on the cusp of opening locations, so we intend to focus on getting as many of those open for business as possible. We also have some key areas that we would like to expand into. Overall, we would like to double our national foot-print, both from a units-opened and units-sold standpoint.
More information on Building Kidz can be found here.