Franchise 500

Behind This Year's Entrepreneur's Franchise 500® Ranking

The industry is changing.
Behind This Year's Entrepreneur's Franchise 500® Ranking
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This story appears in the January 2017 issue of Entrepreneur. Subscribe »

Here’s the deal with franchising. It’s not full of Silicon Valley-style startups. It’s not a hotbed of overnight millionaires or venture capital unicorns. It’s the Midwest of the business world; the best franchise systems put their nose to the grindstone and work year after year, sometimes decade after decade, to slowly and methodically make their franchisees successful and to refine and expand their systems.

Related: 2017 Entrepreneur Magazine Franchise 500 Ranking

Even so, while the pace of change in franchising might lag behind other industries, that doesn’t mean it’s isolated from the revolutions that have rocked the business world over the past decade. Big data, social media, cloud tools and powerful customer management systems have all radically altered the way franchise systems operate, communicate with customers and educate franchisees. 

Average franchise fees

Highest: 7-Eleven (#1): $505,000
Lowest: Kumon Math & Reading Centers (#11): $1,000
Median: Ikor International (#110): $35,000

The Franchise 500, too, has taken some of those upheavals into account in our continuing effort to best understand and evaluate how the franchise marketplace is evolving. Beyond looking at traditional metrics like unit growth, investment cost and brand stability, we’ve examined other equally important data points. For instance, the amount of internal support provided to franchisees can be the difference between mediocre sales and great units. The length of training, help with negotiating leases and guidance in finding financing are all indicators of a strong system. Brand awareness and social media scores can measure which brands consumers are engaging with and which are reaching out to new demographics. All of that, along with financial data, helps determine which brands are strongest and which may offer the best opportunities for interested franchisees.

Related: These Top 10 Franchises Lead Entrepreneur.com's Franchise 500

Total number of combined Facebook and Twitter followers

Highest: McDonald’s (#2): 66,988,413
Lowest without being zero: Buildingstars International (#298): 8
Median: DreamMaker Bath & Kitchen (#477): 9,164

What the data tells us is that the brands at the top of the Franchise 500 and category leaders aren’t one-trick ponies. They tend to excel across the board in many of these areas. For instance, this year’s number one brand, 7-Eleven, ranks well above average in every metric, including growth, support, brand strength and stability. It’s a brand that has mastered the art of engaging and responding to its customer needs by constantly adding new products while empowering its franchisees through a strong support system and an inventory and ordering system that is second to none. Other top brands have similar stories to tell about what makes their franchise systems great.

Average cost to open a unit

Highest: Hilton Hotels and Resorts (#74): $76,558,687
Lowest: Jazzercise (#81): $8,215
Median: Supercuts (#13): $219,100

So what do some of the best brands of 2017 have in common? For one thing, unit economics. Take Jimmy John’s, which topped our list in 2016. The brand now has more than 2,500 units. And once those restaurants are open, they tend to stay open, with the brand closing only six locations in 2015. That’s because JJ’s focuses on keeping each unit as simple and efficient to run as possible. In the age of customized burritos and burgers topped with caramelized brussels sprouts, its menu is an anachronism. There’s nothing fancy on its sandwiches and no substitutions, though they’ll pull the onions or tomatoes off if you want. But that simplified system is at the heart of the brand. It means streamlined inventory and lower overhead for franchisees and “freaky fast” speed for customers. JJ’s knows that for its core demographic, quick is equally important as tasty. 

That type of focus is also what got Sport Clips into the top 10 and the top of the hair-care category for the first time this year. The brand doesn’t color hair or do nails. Instead, it has spent more than 20 years focusing on men’s cuts with no appointments necessary. Franchisees operate clean, upbeat stores, with a few televisions set to ESPN, staffed by well-trained stylists. That formula has helped the brand dominate its niche, adding 150 units last year and bringing its total to 1,600. In 2015, Sport Clips only closed one store.

Related: Top 2017 Franchises By the Numbers (Infographic)

It has also been a slow but steady road for Wingstop, which reached the top 10 for the first time as well this year. The brand, whose motto is “Wings. Fries. Side. Repeat.” is also capitalizing on the desire for speed and convenience that is powering the strength of 7-Eleven and Jimmy John’s. The counter-service brand specializes in carryout wings, meaning it has much less overhead than sports-bar wing brands with table service and full-service bars to maintain. In 2015 the brand added more than 100 units for the first time, closing in on 1,000 in total. Like Sport Clips, it closed only a tiny amount of stores (three) in the same time period, a sign that the system is working. 

In fact, franchise brands across the spectrum are getting stronger as they use new data, customer information and technology to make their systems lean, mean and profitable. There are a lot of new faces in the Franchise 500 this year, and a lot of fierce competition at the top. And that’s a good thing. The stronger these franchise brands become, the better the opportunities are for franchisees. Here’s to another year of hard work.

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