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Weekly UpdatesThe franchising business model continues to expand its presence throughout the United States, according to the latest data available. In 2006, the nearly 3,000 established franchise brands expanded their unit totals by an average of 4 percent. Adding to the growth in total units in 2006 were more than 300 companies, both new and established, that began franchising for the first time. These are the key findings in the second version of the Profile of Franchising study published here by IFA Educational Foundation in cooperation with FRANdata Corp. Last year the IFA Educational Foundation, supported by franchise information firm FRANdata, provided a series of six reports profiling franchising. This year, four additional reports, beginning with this one, will expand upon the Profile series.
The substantial growth of franchising is occurring across a diverse spectrum of U.S. industries. There are now more than 230 lines of business in which one can find franchises.
An evolving trend of franchise concept expansion is its growing presence outside food service industries, particularly industries serving consumer/residential markets. While the fast-food industry still statistically dominates all franchise industry categories, increasingly the biggest action in concept and unit expansion is taking place in other industries. Two of the top five industries (fast food and retail stores), measured by U.S. total franchise units of about 376,500, actually lost market share even though they both grew in absolute unit numbers. The services industry (comprising the health and fitness, publications, security and consumer services, sectors) was in the top five of both unit-market share and for fastest growing industries, measured by new units.
To simplify the presentation of data, 18 industry categories were used, which align with the previous Profile series of reports initially done in the 1990s. Each industry category is comprised of multiple sectors within it and there are 230 sectors within those 18 industries. For instance, the fast-food industry has 22 sectors, ranging from barbeque to sub-sandwich shops. The 18 industry categories are shown at the end of this article. For a detailed list of industries and sectors, visit www.frandata.com.
The following analysis represents multiple views of franchising today. Drawing from a database of nearly 3,000 franchise concepts, sample sizes for specific topics presented below vary primarily for technical reasons. Each view of the database will indicate the technical definition used for a particular analysis and the number of franchise concepts that meet a particular definition. Future articles in this series and the final compilation will benefit from expanded views of the continually updated database.
FRANCHISE SYSTEMS
From 2000 to 2006, the number of franchised concepts has grown in 17 of the 18 general industry groupings. The printing industry represents the sole exception, having experienced a slight decrease in the number of franchise concepts. During that same six year period, the number of franchise units increased by 33 percent from about 283,000 units to 376,000 units.
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From 2000 to 2006, total franchise unit increases in franchised concepts ranged from 6 percent in personnel services to 105 percent in those that are child related.
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In 2006, concepts in the 22 sectors that comprise the fast-food industry represent 31 percent of all concepts, which is a decline of 2 percent from the beginning of the decade. New concepts in other industries are being added in much greater numbers, confirming the expansion of the franchise business model into other lines of business.
The fast-food industry had the steepest unit growth at 25 percent since 2000. It was thus able to strengthen its position as the largest franchise industry by this important standard. Fast-food franchise unit totals continue to outstrip every other franchise industry category by a wide and expanding margin. As of 2006, measured in units, the gap between the fast-food industry and the next best performing industry-services-is more than 80,000 units.
Within each franchise industry category there is a lot of change happening. For instance, the hamburger-related sector of the fast-food industry accounted for the most units (33,900). However, two of the fastest growing sectors within fast food were fruit drink and sub shops at 130 percent and 75 percent, respectively.
The publication and the health/fitness sectors contributed the most to the growth of the services industry. Health/fitness grew by 156 percent and publications by 137 percent The biggest sector in the maintenance services industry is commercial/residential cleaning. Between 2000 and 2006. unit numbers increased by 37 percent, from 15,800 to 21,700 units. The next largest maintenance services industry sector, carpet and upholstery cleaning, had 6,800 units at the end of 2006. with six year unit growth of 14 percent. Neither of these sectors is even in the top two sectors for unit growth, however. That claim goes to the window cleaning and handyman services. They have grown by 260 percent and 247 percent, respectively.
The retail store industry declined slightly over the period 2000 to 2006. measured by relative number of franchise concepts. However, unit growth was a respectable 21 percent, driven by three strongly performing sectors. Computers grew by a substantial 700 percent while flower stores and clothing grew by a 351 percent and 223 percent, respectively.
Business-related franchise units grew by about 37 percent between 2000 and 2006, an average annual of 5 percent. The leading sector within this industry category was tax services. Between 2000 and 2006, tax service franchise units grew by more than 50 percent, from about 7.800 to 11,800 units. Unit growth in the insurance products sector of business-related services grew by 35 percent, from a total of 1,034 units in 2000 to 1,401 in 2006. The annual average unit increase was about 5 percent.
The next biggest category was real estate, which grew its unit total by 43 percent. Real estate brokers/services was the biggest sector by unit numbers at the end of 2006. Its 19,000 units significantly outnumbered the roughly 860 units for real estate/general in 2006. although the latter grew much faster over the six year period.
While unit growth figures remained relatively stable, there were some star performers among the fastest-growing franchise concepts, measured in unit growth. Child-related franchises had a substantial 105 percent increase between 2000 and 2006, more than doubling its unit numbers from 2.227 to 4,572. In addition, the services industry nearly doubled its unit number.
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The concepts gaining the most market share, measured in units were:
Darrell Johnson is president of FRANdata Corp., the leading source for information, research and analysis regarding the business of franchising. It has the world's largest library and databases of franchise data. FRANdata provides objective and unbiased services. He can be reached at 703-740-4700.
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