Franchise Unit Growth Hot Worldwide Despite Flat Unit Growth in U.S.

The Census Bureau estimates consumers spent $4.3 trillion on retail and food service purchases in 2006 at the types of businesses that dominate franchising, despite meager wage growth. Against this backdrop, Franchise Times Corp. released their Top 200 franchises, as well as 100 up and comers, for 2007. The companies of the Top 200 managed collective worldwide sales of nearly $445 billion, a more than six percent increase from last year.

Unit growth for these companies was not nearly so robust, however, with the 5,879 additional company and franchised locations up only 1.5 percent. The Top 200 companies shed domestic units last year, counter-balancing continued global expansion by the multinationals to the tune of 6,500 additional foreign locations. Unlike the prior year's heavily franchised-led growth, unit development in terms of company versus franchised locations was far more balanced last year.

The Top 200 retains 184 companies from last year, 81 of which improved their ranking. Of the remaining, 18 retained their rank and 85 edged down. The 16 companies new to the Top 200 are evenly split between those that graced the up and comers list last year and those that are completely new to the ranking. All-in-all, franchise-operated units continue to outnumber company-operated units by a ratio slightly better than four to one.

Restaurants again reign supreme in the Top 200 rankings. Despite the myriad of problems faced by the casual dining sector last year, the 71 Top 200 restaurant chains accounted for $188 billion in sales, a seven percent increase from last year. The 119,000 domestic restaurants they operated at the end of last year accounted for approximately 20 percent of all restaurants opened in the United States. Still, nearly 30 percent of these companies' restaurants serve customers overseas, and 83 percent of those locations belong to the five biggest restaurant brands.

The quick-service sector can take credit for much of the increase in restaurant sales, benefiting as it has from consumer anxiety, in addition to rapid international expansion. A total of 17 fast food companies on the ranking had sales in excess of $1 billion last year. McDonald's reported system wide sales growth of seven percent across the globe in 2006, focusing on sales in existing units rather than on domestic expansion efforts. McDonald's and big players such as Yum! Brands' KFC chains have changed their focus from domestic expansion to international expansion due to domestic oversaturation of their restaurants. This change in strategy allows smaller concepts greater opportunity to compete for domestic market share.

Not surprisingly, sales growth was swiftest nearer the other end of the ranking. Zaxby's increased sales some 40 percent last year as it added half as many units. Buffalo Wild Wings managed to grow sales more than 30 percent in 2006, rewarding shareholders with 60 percent returns in the process. And Jimmy John's increased its unit count by more than 100.

While restaurants generated the most sales, the 41 hotel chains on the Top 200 - with a combined 20,000 domestic and 4,000 international locations -generated the most sales growth. Smith Travel Research estimates domestic hotels managed to raise rates more than seven percent last year, at nearly twice the rate of inflation. This helped the industry to grow domestic revenues to just less than $100 billion last year despite occupancy rates that were flat.

The ranking's retail companies managed collective sales of $76 billion last year led by the number two ranked 7-Eleven chain, operator of some 25,000 international convenience stores. Five retail chains on the ranking - Ace Hardware, Matco Tools, The Athlete's Foot, Cartridge World, and Play It Again Sports - boast 100 percent franchised systems.

The catchall group of companies combined in the 'all other' industry category includes franchisors from all corners of the economy. While these businesses generated just seven percent of all Top 200 sales last year, they collectively account for one in five Top 200 units and are responsible for spreading the franchise model into new and evolving economic sectors.

'In America, there is a constant reshuffling of the franchise landscape. Franchising remains a very strong and competitive facet of the American economy,' says Mary Jo Larson, publisher, Franchise Times. 'Abroad, companies are seeing the potential that an international franchise offers. With more than 123,000 operating locations outside America and an established demand, we expect this growth trend to continue.'

About Franchise Times Corp.
Franchise Times is the news and information source for franchising. The publication provides in-depth business coverage of franchising, including articles about and of interest to, franchise owners and operators, as well as the success stories and the personalities who work in the industry. The magazine covers the activities of companies allied to the field including franchise vendors, lawyers, regulators, and trade associations.



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