Franchise Growth

As the credit markets have begun loosening up, more franchisees are starting to spread their wings and grow. A new report by Technomic and Restaurant Finance Monitor finds that the franchising of restaurant brands continues to be a major growth avenue pursued by chains. Many operators are signing new franchise agreements to open new stores or acquiring preexisting locations to expand their unit counts while also enhancing brand development and marketing.

“Restaurant companies are shifting towards a franchise growth model by selling company-owned stores to raise money and reduce capital expenditures, focusing more on the brand and less on operations,” said Technomic EVP Darren Tristano. “The fast-casual and quick-service segments in particular are seeing higher levels of appeal based on lower costs of entry and strong unit economic models.”

Franchising can be an attractive scenario for operators. Many are taking advantage of national brand strength and resources while reducing their own start-up and operating costs. Plus, with recent closures, more prime locations are available for new restaurants.

These findings are part of the 2012 Top 400 Restaurant Franchise Company Report, produced by Technomic in conjunction with Restaurant Finance Monitor. Other findings include:

  • The Top 400 restaurant franchise companies generated an estimated $34 billion in sales in 2011 and accounted for almost 10 percent of the total commercial restaurant industry's sales of $370 billion. Total units from the Top 400 came to 27,206, comprising nearly 5 percent of the commercial restaurant industry's units.
  • NPC International continued to dominate franchise sales at $938 million in 2011. As the largest Pizza Hut franchisee, it operated 1,151 restaurants at the end of last year, an increase of 1.3 percent from 2010.
  • Eighty-seven percent of McDonald's sales came from franchised stores for a total of $29.7 billion in 2011, whereas Subway's system is 100 percent franchised, meaning that all $11.4 billion was generated by franchisees. The next largest chain in terms of total U.S. franchise sales was Burger King at $7.4 billion.