Franchise 500: Our Definitive Ranking of 2020's Strongest Franchises
This year’s Franchise 500 raises a philosophical question: Would you rather serve customers’ wants -- or their needs? Businesses of all types, of course, are designed to serve consumers’ wants or needs. But franchising 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 franchising, as well as the history of our 41-year-old list, the want has won out. But will it always?
For example, the largest category in our list -- and in franchising as a whole -- is, of course, food. More than one-fifth of ranked franchise companies are in the business of feeding people. 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 category 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 struggling: There are only nine ranked this year, compared with 18 last year. Of course, that’s not to say food franchises are in real trouble. A full quarter of all applicants 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 numbers are notable, especially in light of our second-largest category: maintenance. Because that is a category all about need.
Repair, cleaning, restoration, lawn care -- these are the kinds of businesses that fall into our maintenance category. 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. Franchises in this category are generally considered 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 category 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 pondering want versus need. There’s obviously plenty of opportunity in both -- but each year tips the balance 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 operating 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 compares with an increase of 14,503 (2.8 percent) from 2017 to 2018. Growth is particularly strong internationally. Our ranked franchises 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 operating by the companies on our list, 511,325 (a little over 92 percent) were actual franchised locations. The rest were company-owned 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 the largest brands in the industry, 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 marketplace. Personal care businesses, 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 companies 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 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 recreation. 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 booming, 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 category 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 broken windows and shaggy lawns that need fixing. They’ll want to try the latest fun activity, and then they’ll want to move on to the next latest fun activity. So no matter 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.