Multi-Unit Franchisee Magazine Special Edition | Page 8

MUOs ON THE RISE

THE PACE OF CHANGE HAS BEEN CONSISTENT AND RATHER PREDICTABLE
Multi-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 single-unit 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 multi-unit 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 multiunit franchisees are in food . As the table shows , more than 82 % of franchised QSR businesses are controlled by multi-unit franchisees , followed by restaurants ( sitdown ) 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 .
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 multi-unit 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
TOP 10 INDUSTRIES BY MUF CONTROL
% Multiple Units
QSR 82.4 % Restaurants ( sit-down ) 77.1 % Baked goods 72.1 % Beauty-related 66.4 % Frozen desserts 65.6 % Business-related 58.0 % Automotive 57.9 % Retail food 57.1 % Real estate 40.8 % Clothing & accessories 38.3 % Education-related 37.8 %
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 multiunit 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 %.
ADDITIONAL FINDINGS Here are some more statistics that shed light on the profile of multi-unit operators .
• Based on a large sampling of franchised businesses for which gender information was available , 28 % were women-owned , and almost 40 % of these were controlled by multi-unit franchisees .
• Of the more than 40,000 multiunifranchisees , 7 % ( about 2,700 ) operate units across several brands . While that doesn ’ t seem like a high percentage , it is growing quickly .
• Of the roughly 450,000 total business 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 .
Across all units , the average multiunit 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 franchising sector since 1989 . He can be reached at 703-740-4700 or djohnson @ frandata . com .
6 2017 Annual Edition