These Top 10 Franchises Lead Entrepreneur.com's Franchise 500
Founded: 1927, Oak Cliff, Tex.
Worldwide units: 60,000
U.S. units: 8,504
Cost to open a store: $37.2K-$1.6 Million
How often a new store opens: Every 3.5 hours
This year, for the first time in almost a decade, 7-Eleven has earned the top spot on the Franchise 500. Take a moment to get all the Kwik-E-Mart and Slurpee jokes and jabs about hot dogs eternally shriveling on the roller grill out of the way; 7-Eleven didn’t make it to number one by selling burned coffee and Slim Jims (well, the Slim Jims did help). Over the past decade, the 90-year-old brand has reimagined the convenience store for the 21st century by having a laser focus on staying relevant to customers, providing great service and opportunities to franchisees and harnessing technology and economies of scale to grow its system and energize same-store sales. “We’re a remarkable brand and have had a remarkable journey,” says CEO Joe DePinto. “I think what we’re doing now is recognizing just where the consumer is, like we did back in the 1920s when we started. We’re tailoring our products to meet their needs.”
Where’s the consumer today? In a time crunch. And 7-Eleven -- offering average transaction times between 75 and 120 seconds -- aims to give them a shortcut. By stocking an ever-growing selection of items, the stores offer an alternative to cavernous grocery stores and long checkout lines at the drugstore. Workers on a lunch break or on the way home can pop in for an ever-expanding fresh and hot food menu, saving them the wait at fast-food and fast-casual restaurants.
The heart of 7-Eleven’s success, however, is its “retailer initiative” program. For many convenience-store chains, a corporate purchasing office determines all stores’ products. But 7-Eleven allows its owners to choose from thousands of products, customizing each store to its neighborhood. A location near a residential area may carry extra flour and Pampers. A 7-Eleven near a hospital might focus on balloons and get-well cards. A store next to a gym might have energy drinks and extra salads. The program’s digital ordering system lets franchisees know exactly what’s selling and what duds are taking up valuable shelf space in their region, city and individual store.
“We call it a pull strategy,” says Chris Tanco, executive VP and COO. “Most other stores push product based on what their vendor offers or what they can buy at discount. We are the opposite. We look at every store and say, ‘Who are our customers, and what do they want?’”
A big percentage of those offerings are the company’s 7-Select private-brand products, which aim to compete with national brands on quality but offer lower prices to customers and higher margins for franchisees. And it’s not just potato chips -- 7-Eleven has house-brand coconut water, Sea Salt Caramel Truffle Ice Cream, nine-volt batteries and almost 400 other products (though maybe it’s best we forget its ill-fated Game Day Ice Beer).
That food program has fundamentally changed the brand in recent years. Now 96 percent of the company’s 8,504 U.S. locations have TurboChef ovens and serve hot breakfast sandwiches, burgers, pizza and chicken tenders, which they claim stand up to brands like Dunkin’ Donuts and Subway. Salads, cold sandwiches and snack packs like pita chips and hummus are made daily and delivered from a central commissary in each region. “We believe not just hot foods but our entire fresh-food platform is driving business substantially,” says Larry Hughes, VP of franchise systems. “The 7-Eleven customer can come in any time of day and satisfy any meal or get a snack.”
While 7-Eleven seems to have its operations dialed in, the franchising side of the business is really the most exciting. In 2006, 75 percent of the stores were owned by franchisees. Ten years later, that has jumped to 90 percent. In the past five years alone, the brand has added 1,500 units in the U.S., including 500 business conversions, in which existing convenience stores are rebranded as 7-Eleven. “The day they convert from an independent convenience store to 7-Eleven, sales simply skyrocket,” says Hughes. “There’s so much to be said about the power of our brand. And they can really tailor their product assortment to customers in ways they simply couldn’t as independent operators.”
In fact, the company is committed to diversifying its franchisee base, bringing in more women, African-Americans and Hispanics who know and represent the communities where their stores are located. In certain areas, the company waives the franchise fee or offers in-house financing to help worthy franchisees get into business.
“7-Eleven is built on a co-prosperity model,” says 32-year-old Kiran Hussain, who has opened six 7-Eleven stores in the Los Angeles area in the past six years. “It’s unlike any other franchise; it’s a partnership between 7-Eleven and its franchisees.”
That bodes well for the future, says CEO DePinto. “Quite frankly, convenience stores are in a pretty good position because our inventory is so close to customers. That’s something bigger boxes are struggling with. We’re really involved in our customers’ lives, and that involvement continues to grow.” -- Jason Daley
Founded: 1955, San Bernardino, Calif.
Worldwide units: 36,000
U.S. units: 14,000
Cost to open a store: $1M-$2.2M
McDonald’s -- that ur-franchisor, in the game since the milkshake salesman Ray Kroc met the McDonald brothers in 1954 in San Bernardino -- had a very good year. It added 655 new franchises, even as it dropped 519 restaurants from its direct control. This is part of CEO Steve Easterbrook’s strategy to get McDonald’s to 95 percent franchise-owned. (It’s now at 83 percent, a 1 percent increase over 2015.)
Not all is perfect, as any news follower knows. Last year, headlines repeatedly trumpeted a sales slump. This year, The Wall Street Journal reported that only one in five millennials has tried a Big Mac -- a troubling trend considering that burgers make up 20 percent of McDonald’s U.S. sales. To widen its appeal, the company began offering all-day breakfast, committed to serving chicken free of antibiotics and removed artificial ingredients and preservatives from various foods on its ever-widening menu. This has pleased customers -- same-store sales were up 6.2 percent in the first quarter -- but upset some franchisees. A survey of them published in 2016 by Nomura, a Japanese-based financial services group, found that the menu slowed the delivery of meals.
Still, Easterbrook said on a third-quarter earnings call, “At the restaurant level, franchisee cash flows reached all-time highs in many markets, including the U.S.” And despite the bad headlines, McDonald’s earnings have grown for five straight quarters. It is taking bold new initiatives like rolling out self-order kiosks and table service, and few companies do more to help a new franchisee than the Golden Arches. Training a new owner takes between nine and 18 months; at other companies, it might last only a few days. The granddaddy of franchisors wants to help its new owners anticipate what’s next. -- Paul Kix
3. Dunkin' Donuts
Founded: 1950, Quincy, Mass.
Worldwide units: 12,000
U.S. units: 8,600
Cost to open a store: $228.6K–$1.7M
Cups of coffee sold per second: 30
The coffee-and-doughnut brand’s tally in the U.S. sounds like a lot -- it has more than 8,600 existing shops -- but that’s small by the company’s ambitions. Grant Benson, its VP of global franchising and business development, says the long-term objective is to hit 17,000 by … well, Dunkin’ declines to give a time frame. Still: Where would all these new franchises go?
Essentially everywhere between the coasts is an open market, Benson says -- one the company is pursuing with the wide-eyed vigor of someone who just downed one of its tankard-size extra-larges. Between June 2015 and June 2016, Dunkin’ Donuts saw a franchise uptick of 333 units in the U.S. The company is also seeing strong growth abroad, with 148 new franchises opening in international markets -- more than triple its international growth from the previous year.
To further accelerate expansion, Dunkin’ Donuts is offering special development incentives, including reduced royalty fees for three years and up to $5,000 in local marketing for stores that meet opening goals. Dunkin’ also offers an incentive to qualified military veterans: a 20 percent discount on the initial franchisee fee for purchasing a store development agreement for five or fewer stores. All this combines to ensure that the thing America runs on is going to keep running for the foreseeable future. -- Matt McCue
4. The UPS Store
Founded: 1980, as Mailboxes, Etc.; acquired and renamed The UPS Store in 2012
Worldwide units: 4,943
U.S. units: 4,590
Cost to open a store: $159.2K-$434.5K
There are only three things certain in life: death, taxes and the need to send packages. That’s why UPS has added 167 franchise locations in the U.S. and Canada over the past three years, despite headwinds from a digital-communicating world. And much of that growth (the company’s tally stands at 4,943) is being driven by existing owners. “In 2011, 40 percent of our stores were owned by multiple unit owners, and today that number is over 50 percent,” says UPS Store VP of franchise development Chris Adkins.
Still, to keep up with the times, UPS has been evolving its traditional shipping-supplies approach. It has added 3-D printers at 62 locations to make inroads with small-business owners looking to quickly produce prototypes. And it is developing a new store-in-store model by putting UPS counters in places like hardware shops and hotels. “We just put a store-in-store in a New Jersey pharmacy and the owner told us that everybody who comes in to do a UPS transaction is also purchasing something from the pharmacy,” says Adkins. “It’s driving his traffic, as well as UPS Store traffic.” -- Matt McCue
5. Jimmy John's Gourmet Sandwiches
Founded: 1983, Charleston, Ill.
U.S. units: 2,600
Cost to open a store: $325.5K–$555K
Age at which founder Jimmy John Liautaud opened his first shop: 19
After six years of teaching special education students, and three years at an office supply company, Dan Vansteenburg was itching for a career change. He knew he wanted to get into the restaurant business, though he lacked experience and had never so much as taken a business class. But he has become a thriving Jimmy John’s franchisee all the same. “The simplicity and the thoroughness of Jimmy John’s systems and procedures allowed me to be successful within months,” he says.
That simplicity is truly key. Unlike chains that offer endless customizations, Jimmy John’s menu is mostly fixed, which means a streamlined inventory for franchisees, and consistently fast -- or to invoke the chain’s motto, freaky fast -- service for customers. Plus, corporate support is responsive and reliable. “I can’t tell you the last time I had a problem that didn’t get resolved within 24 hours,” Vansteenburg says. “That level of service from a franchisor is, from my perspective, unprecedented.”
Vansteenburg’s enthusiasm helps explain why once someone has bought into a Jimmy John’s franchise, they tend to commit for the long haul. The number of Jimmy John’s franchise closures in 2016 was six out of more than 2,600 shops. As for Vansteenburg? He is now the company’s single largest franchisee, with 59 stores across Minnesota, New York and Boston. -- Matt McCue
6. Dairy Queen
Founded: 1940, Joliet, Ill.
Worldwide units: 6,700
U.S. units: 4,460
Cost to open a store: $361.5K-$1.8M
Despite Dairy Queen being a quintessential Main Street American experience, it is growing rapidly overseas. Of the brand’s 6,700 locations, more than 2,200 operate outside of the U.S. In each of the past two years, Dairy Queen has seen 150 new units open internationally, with room for more development in Korea, the Caribbean, Europe and Latin America.
So what makes DQ such an appealing overseas opportunity? “Concentrated support in international markets,” says Texas-based Mario Nafal, who, along with his brothers, Salah and Khaled, opened two new Dairy Queen Grill & Chill (which serves burgers and savory fare, in addition to frozen treats) locations in Jordan in 2016. The brothers appreciate DQ’s focus on brand development, and the ample resources to make new units work. And, of course, they love that servers can turn DQ’s signature product upside down without it dumping all over the floor, delighting customers. “There is nothing that comes close to the Blizzard served upside down,” says Mario. “That is a dominant differentiator in a very competitive industry.” -- Matt McCue
7. Ace Hardware
Founded: 1924, Chicago
Worldwide units: ~4,900
Number of stores in the U.S.: 4,335
Cost to open a store: $272.5K-$1.6M
CEO John Venhuizen says his brand is “about home preservation, rather than renovation, and therefore practically recession-resistant.” But all the same, the current home-remodeling boom -- fueled by HGTV and other real estate porn -- is clearly benefiting the 93-year-old Ace Hardware Corp. The year 2016 was its fifth in a row to see significantly more stores opening (160) than closing (90), and the fourth to see increased sales.
Ace still faces challenging times, of course: The threat of e-commerce looms large, and the housing market hasn’t recovered in the same way across all of America. But Venhuizen says the company is up to the challenge, and continues to draw in new customers by emphasizing convenience, quality merchandise and service.
Ace drives that message home by giving franchisees total freedom to develop their stores, customize the look and feel to match each local community, and experiment with what else customers might want. For example, Bob Mitchell, who owns 10 stores in Washington and Oregon, opened a Hallmark store-in-store in one of them. Ace is also investing in technology. In 2016, 90 percent of Ace’s online sales were then picked up in-store. That sort of adaptability combined with the personal touch, Venhuizen says, is what Ace is all about -- and why it will continue to be relevant. “There’s no drone that delivers and assembles an outdoor grill,” he says. Not yet, anyway. -- Boyd Farrow
8. Wingstop Restaurants
Founded: 1994, Garland, Tex.
Worldwide units: 949
Units outside the U.S.: 67
Cost to open a store: $238.4K–$922.9K
Billionth wing sold in: 2002
Swooping into the top 10 for the first time, Wingstop -- the Dallas-based chain of aviation-themed restaurants serving chicken wings -- saw a record 145 openings in 2016, a 16 percent increase, with only four closures in 2015. Top-line sales increased for the 13th consecutive year, and the company continued its international expansion, breaking into Latin America.
CEO Charlie Morrison attributes his company’s success to the simplicity of its concept: turning an appetizer into a customizable “center-of-the-plate” offering, and then focusing on takeout, which keeps overhead low compared with its traditional sports-bar competitors. “Our model is unique,” Morrison says. “We are in a category by ourselves.” Wingstop has also been getting into unique sales techniques: It has enthusiastically adopted social media, even enabling customers -- particularly those pesky and impatient millennials -- to order via Twitter or Facebook Messenger. Online ordering now makes up 19 percent of sales, almost four times the 2012 total.
The formula is working both at home and abroad: International units have nearly doubled over the past two years, and Morrison believes that its U.S. store total could soon double as well. -- Boyd Farrow
9. Sport Clips
Founded: 1993, Austin, Tex.
Units: 1,625, all in North America
States with a Sport Clips franchise: 50
Cost to open a store: $183.3K–$351.5K
Slogan: “It’s good to be a guy”
“I recognized early on that most men don’t know a good haircut from a great one,” says Gordon Logan, the founder of Sport Clips, “but they know a great experience.” So that’s what he aims to provide. The brand offers haircuts in a sports-themed environment -- a 20-minute, no-appointment-necessary session includes shampoo, haircut, neck and shoulder massage and a steamed towel.
It’s an affordable treat even in lean periods. This has helped push the 24-year-old Texas company for the first time past two industry titans -- Supercuts and Great Clips -- to claim the top spot in this year’s Franchise 500 haircare category. In June, the company reached the milestone of $3 billion in cumulative sales. By late November, it had opened its 1,600th franchise. Logan thinks Sport Clips can clear 2,000 within three years. “There’s still plenty of room in the Northeast,” he says. And growth comes steadily; only six stores have closed since 2010.
Sport Clips supports its expansion by providing intensive training and flexibility to its stylists. That makes it easy for them to move locations should the need arise, thereby keeping talent in the family. And the need does arise. “When it gets cold,” says Debra Sawyer, who operates a dozen Sport Clips, “there’s usually around 10 transfer requests from Minnesota to Florida.” -- Boyd Farrow
Founded: 1973, Denver
Worldwide units: 7,275
U.S. units: 3,654
Cost to open a store: $37.5K–$224K
The name: Derived from real estate and maximums
Although 64 percent of its growth in the past year came from abroad, real estate powerhouse RE/MAX saw net growth of more than 104 franchises stateside in 2016, propelling it into our top 10 for the first time since the housing market was gutted in 2008. That doesn’t mean things are easy, however.
RE/MAX has yet to climb back to its 2007 peak in terms of unit numbers, and many agents still find themselves dealing with the after effects of the recession such as an abundance of properties in many markets. “I had the best year ever,” says Mike Seder, the top RE/MAX agent in Texas for the past two years by sales volume, “but I’m having to work harder.”
Still, he says, brand equity goes a long way. “People look for big names, which is why I’ve stayed with RE/MAX. They also provide good support with speakers, classes and mortgage offers.”
One thing corporate can’t help with: the widening use of app-based home security systems that allow sellers to spy on their open houses. Seder says, “If the client hears you agreeing with a potential buyer that you don’t like the decor, you may lose the listing.” -- Boyd Farrow