The Wonder Years
The next time you open your wallet, remember that one out of every three dollars you are carrying is likely to be spent on products or services of a franchised company. There are more than 400,000 of them in the United States, and these firms account for nearly one-third of all retail sales. -Entrepreneur's 1st Annual Franchise 500®, March 1980
It seems there's nothing new under the sun. And the only constant in life is change. Over the past 20 years, franchising has seen its share of constancy-and of change. We realized back in 1979 just how monumental this marketing concept called franchising could be. And we took a leap of faith, inventing a ranking concept called the Franchise 500®.
On the 20th anniversary of our highly celebrated Franchise 500®, we've taken time to reflect on how much has really happened since our humble beginnings. Here, some excerpts from our first Franchise 500® issue, with a flash forward to 1999:
Where is the Next McDonald's?
On behalf of our readers, we're still asking this question. Some of the answers may be surprising, considering that when the Franchise 500® started 20 years ago, a spate of today's franchising stars didn't even exist. Auntie Anne's, TCBY, Jackson Hewitt, Moto Photo and Fastsigns were unheard of then. The entrepreneurs behind Yogen Früz, this year's No. 1 franchise, as well as Papa John's Pizza, were still in high school. Hot franchise concepts back then included convenience stores, doughnut shops, family-style restaurants, furniture stores and pancake houses.
Some categories are perpetually hot: Fried chicken, Mexican food, pizza and, of course, hamburgers were, and still are, among franchising's most popular offerings. Some opportunities boomed and then fizzled, like independent video rental stores, which were gobbled up by Blockbuster faster than a Spielberg movie hits No. 1. Still others have come and gone and come again. Take tanning salons (please). In 1980, we wrote, "While the jury is still out on the long-term viability of the suntanning parlor concept, there's no question that growth in this business has been dramatic." In 1999, after a long sabbatical, this category is once again back in the artificial limelight.
Many of today's Franchise 500® institutions were just getting rolling 20 years ago. Subway had 134 franchises, plus 16 company-owned stores; now the company has almost 13,400 locations worldwide. And what of the epitome of franchising? McDonald's had a seemingly impressive total of 5,749 stores in 1980; it's since solidified its status as a global icon, with over 16,000 franchises and nearly 5,000 company-owned locations worldwide.
Robert Feinstein, chairman of the board of United Rent-All, a major equipment rental franchise, tells of a time when he was lunching at a McDonald's outlet and overheard two women talking. "They said they'd eaten dinner there the night before and had breakfast there earlier in the day. I asked why they came back so often. 'Because it's fast and easy!' " -Franchise 500®, March 1980
One of the most significant changes in franchising, reflected by the Franchise 500®, has been the transition from a retail to a service-oriented market. Practically everything required a storefront location 20 years ago-today, the focus is not on location, location, location, but convenience, convenience, convenience. Services that save people time are always in demand.
Technology and the World
The $400 hobby computer is an example of where technology is leading us in one respect. Computer stores staffed by specialists are blossoming all over the country to capitalize on this trend. As this technology becomes more and more readily available to the mass market, consumer acceptance will increase dramatically -Franchise 500®, March 1980
Another massive change in franchising came via technology, which hadn't even truly hit the industry 20 years ago. Now franchise business is e-business-so this year we've included Web sites in our Franchise 500® listing for the first time.
The technological revolution has hit franchising full force, making it easier for potential franchisees worldwide to explore opportunities before they buy and then communicate more effectively with their franchisor and fellow franchisees after they hop on board. Franchise shoppers are no longer limited to investigating franchises located in their immediate vicinity, but can research the perfect franchise even if it's based halfway around the world.
Through the Franchise 500®, we've also had a front-row seat for major shifts in franchising and the economy at large. In 1981, we first started asking franchisors whether they were seeking locations in foreign markets. Most said no. Today, everyone wants a piece of the world-some companies even have franchise offices overseas.
Behind the Scenes
Internal as well as external changes have affected the Franchise 500®. Perhaps the biggest change has been wrought by technology. Twenty years ago, compiling the necessary data involved reams of paper, tedious typing and retyping, and painstaking typesetting. Today, sophisticated database software enables the Franchise 500® staff, led by senior managing editor Maria Anton and research editor Liza Potter, to manage more information in less time.
That's not to say that the task is quick, easy or paperless. The lengthy process of creating the Franchise 500® begins when the staff sends out mailings to more than 2,000 franchisors in early August. As application forms and Uniform Franchise Offering Circulars (UFOCs) begin rolling in, phone calls are made to verify information and fill in any gaps. Towering stacks of UFOCs are sorted and analyzed. Throughout the process, CPA David R. Juedes plays a key role, analyzing financial data from all participating franchise companies to ascertain their financial stability.
Once all the information is in the database, Entrepreneur's entire editorial staff gets involved, with everyone from editorial assistants to managing editors pitching in to proofread and reproofread every last digit for accuracy. Finally, after three months of intense labor, Anton and the Franchise 500® staff make the final ranking calculations, using a closely guarded formula. (Rumor has it a well-known franchisor once attempted to break our top-secret code.) Once the scores are computed, the staff finds out who made the final cut.
Making a Difference
Our Franchise 500® is not only the first and most comprehensive listing of franchises in the world; it's arguably the most successful. So great is its influence, we're often (mistakenly) labeled a franchise magazine.
For whatever reason, other misconceptions have persisted. "Everyone says you can't buy a McDonald's," says Anton. "We asked them point blank , 'If our readers called you, would they be able to buy one?' and they said yes. If they had said no, we wouldn't include them. We're trying to find the best opportunities for entrepreneurs. We do the Franchise 500® for the readers."
And it's gratifying to know we're successful not just in relation to competitors who've followed in our footsteps, but ultimately in doing just that-serving entrepreneurs. In fact, we were pleased a few years ago to hear that Scott Shane, a professor at MIT, conducted a study that revealed ranking in our Franchise 500® was one of the top factors determining which new franchises survive.
Life at Entrepreneur wouldn't be quite the same without the Franchise 500®. We'd like to think franchising wouldn't be quite the same without it, either.
Surprisingly, photo franchises finished first in percentages of unit growth. Visit the Photo Franchise Table to see the top five photo franchises.
10 best franchise opportunities over the past 20 years.
3. Burger King
10. Dunkin' Donuts