Page 60 - Entrepreneur - USA (January - February 2020)

THE FRANCHISE
his year’s Franchise
500 raises a
philosophical
question: Would
T you rather serve
customers’ wants—or their needs?
Businesses of all types, of
course, are designed to serve con- bers are notable, especially in
sumers’ wants or needs. But fran-
chising does it in a particularly
stark way. A franchise brand must
be exceptionally clear-eyed and
mission-focused; it must develop
a system so crisp and efficient
that it can be replicated tens or
hundreds or thousands of times.
Therefore, a franchise must truly
stake its ground: Its purpose is to
either fulfill a want or be there in
times of need.
Throughout the history of fran- compelling business. Franchises
chising, as well as the history of
our 41-year-old list, the want has
won out. But will it always?
For example, the largest cat-
egory in our list—and in fran-
chising as a whole—is, of course,
food. More than one-fifth of
ranked franchise companies are
in the business of feeding peo-
ple. And although everyone
needs food to survive, we’d argue
that this is a category all about
want. McDonald’s and Sonic and
Culver’s and others all compete
for who has the most desirable
burger. And because people want
good food over and over again,
there’s plenty of opportunity for
repeat business—and, therefore, a
very scalable business.
But intriguingly, the food cat- dering want versus need. There’s
egory is shrinking slightly. There
are 103 food franchises ranked
in our Franchise 500 list this
year, compared with 120 last
year. Of those food franchises,
86 are quick-service brands; last
year, there were 94 quick- service
brands on our list. And full-
service brands seem to be strug-
gling: There are only nine ranked
this year, compared with 18 last
year. Of course, that’s not to say
food franchises are in real trou-
58 / ENTREPRENEUR.COM / January-February 2020
ble. A full quarter of all appli-
cants to the Franchise 500 this
year came from food companies,
and seven out of the top 10 on
our list—as well as more than a
quarter of the top 100!—are food
franchises. But the smaller num-
light of our second-largest cate-
gory: maintenance. Because that
is a category all about need.
Repair, cleaning, restoration,
lawn care—these are the kinds of
businesses that fall into our main- The rest were company-owned
tenance category. Whereas cus-
tomers frequent a food franchise
when they want to be delighted,
customers turn to a mainte-
nance company when something
is wrong. This makes for a very
in this category are generally con- the largest brands in the industry,
sidered recession-proof, they cost
considerably less to operate than
a restaurant does, and they can
often be run from home or a van.
Maintenance has long been
the second-largest category
in the Franchise 500, and it
appears to be constantly gaining
strength even as the food cat-
egory slips. There are 70 such
companies ranked on our list this
year, compared with 62 last year,
and 14 of them made the list’s top
100. There’s even been a notable
growth in crime-scene-cleaning
businesses—so much so that, this
year, we created a stand-alone
subcategory for them.
This is why we’ve been pon-
obviously plenty of opportunity in
both—but each year tips the bal-
ance a little more toward one or
the other.
As for the franchise industry
as a whole, our list brings good
news: It’s growing even stronger!
The companies that ranked in the
Franchise 500 this year had a total
of 555,142 units open and operat-
ing as of July 31, 2019 (our marker
for data submissions), which is an
increase of 18,343 (3.4 percent)
over the previous year. That com-
pares with an increase of 14,503
(2.8 percent) from 2017 to 2018.
Growth is particularly strong
internationally. Our ranked fran-
chises added a total of 10,929 new
units outside America this year,
bringing the total number of open
international units to 222,522.
Of the 555,142 units operat-
ing by the companies on our list,
511,325 (a little over 92 percent)
were actual franchised locations.
units—and those units did
increase slightly this year (after
dipping dramatically the previous
year). However, the general trend
in the industry still appears to be
toward opening franchises instead
of company-owned units. Some of
including McDonald’s, Pizza Hut,
and Supercuts, are also actively
selling off their company-owned
units to franchisees.
And of course, each year
reflects the ever-changing mar-
ketplace. Personal care busi-
nesses, particularly fitness and
hair care, continue to rank well
this year. A total of 22 fitness
brands landed on our list this
year, but that only tells part of the
story: A total of 60 fitness compa- they’ll want to move on to the
nies applied, and more than half
of them began franchising just in
the past five years. That speaks
to a lot of new entrants—and, if
those companies can continue
to gain strength, it hints at even
more fitness brands showing up
Whereas customers
→ frequent a food franchise
when they want to be
delighted, customers turn to a
maintenance company when
something is wrong. This makes
for a very compelling business.
on our list in the years to come.
Smaller categories of note
include health (while only nine
companies ranked, five of those
are in the top 100), as well as rec-
reation. In recreation, trends tend
to wax and wane. Paint-and-sip
studios, which were hot a few
years ago, have now slowed—but
similar DIY studios are boom-
ing, where customers can make
wooden signs and other crafts.
Meanwhile, trampoline parks
are still going strong, but most
are trying to expand by adding
other attractions like go-karts
and climbing walls—which is why
our old trampoline-park cate-
gory has been renamed adventure
parks/entertainment centers. And
what will come next? Well, four
ax-throwing companies applied
to be on our list this year…though
none of them ranked. They’ll have
to sharpen their aim for next time.
In looking through it all, the
only conclusion we can draw is
this: Times change, but some
things really do stay the same.
People will always desire great
food, and they’ll always have bro-
ken windows and shaggy lawns
that need fixing. They’ll want to
try the latest fun activity, and then
next latest fun activity. So no mat-
ter whether a franchise is serving
a want or a need or something in
between, its success will depend
entirely upon its ability to evolve.
This year brought changes. Next
year will, too.