Franchising continues to be a popular business model, generating over $800 billion in economic output in 2022. As an expert in retail and consumer analysis, I wanted to provide an in-depth look at the latest franchising statistics and trends. Whether you‘re considering franchise ownership or just curious about this industry, read on for key insights.
Steady Franchise Growth Over the Past Decade
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Over the past 10 years, the number of franchise establishments has grown 21%. Approximately 780,000 franchised businesses were operating in 2022. [1]
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Both sales and employment within franchising have increased more than 20% since 2012. [2]
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About 300 new franchise brands launch every year. The franchise formation success rate is over 90%. [3]
So while business closures rose during the pandemic, franchises have shown resilience and the sector continues expanding steadily.
Leading Franchise Sectors
The top franchise categories in 2022 were: [4]
- Quick Service Restaurants (18.7% market share)
- Full Service Restaurants (11.4%)
- Retail Food/Convenience Stores (10.5%)
- Hotels & Lodging (9.8%)
- Business Services (9.3%)
- Home Services (4.3%)
Fast food remains the dominant player, though other segments are grabbing an increasing portion of the pie.
Cost of Franchise Ownership
- The average initial franchise investment ranges from $150,000 to $400,000. [5]
- About 65% of new franchises cost $500,000 or less to open. [6]
- Multi-unit franchise agreements often exceed $1 million.
- High-investment franchises like hotels can cost $5M – $100M+ in initial fees and development costs.
As you might expect, food franchises tend to have lower opening costs than lodging or services. But sufficient working capital is essential regardless of sector.
Profile of the Typical Franchisee
Here are some characteristics of franchise business owners today:
- Gender: 65% male, 35% female
- Age: The average franchisee age is 49 years old [7]
- Background: 62% have a college degree [8]
- Occupation: 1/3 were in management roles prior to owning a franchise [9]
- Military service: Around 15% are veterans [10]
In summary, most franchisees have prior business experience, management skills, and higher education levels. Veterans are also recognizing franchises‘ benefits.
Benefits of Franchise Ownership
Though running a franchise has challenges (see below), there are considerable advantages over independent startups:
Proven Business Model – You capitalize on brand recognition and established processes instead of building from scratch. The parent company offers training and support.
Financial Assistance – Franchisors often provide assistance securing small business loans or other financing through trusted lenders. This helps you fund inventory, equipment, payrolls, etc. in the critical early stages.
Cooperative Marketing – By paying into a pooled national marketing budget and promotions, a franchise can gain advertising capabilities a sole startup couldn‘t match. This amplifies brand awareness and drives sales.
Econonmies of Scale – Buying equipment, supplies, insurance coverage in bulk across franchise locations lowers costs for each individual owner. A major benefit that independent competitors lack.
Challenges of Becoming a Franchisee
That said, some aspects of owning a franchise location can prove challenging:
- Significant upfront investments and ongoing royalty fees
- Strict rules and quality control standards from the parent company
- Less flexibility for owners to differentiate or pivot compared to a private business
- A franchisor going under or losing public favor can jeopardize associated franchises
- Supply chain disruptions and rising food costs are hitting restaurants hard right now
So while success rates for franchises are higher overall, it certainly takes exceptional commitment, execution, and financial planning to run one. Let‘s explore…
Keys to Franchise Success
Based on SBA data, about 90% of franchise units reach the 3-year profitability milestone, compared to only 17% of independent startups. What sets the thriving franchises apart?
Securing Capital – Having adequate funding to get through slow initial months is vital. This allows you to keep locations fully staffed, stocked, and equipped while building a customer base.
Picking the Right Industry – Certain sectors like quick-service restaurants or retail see higher revenues than most independent ventures could manage. So matching your franchise area to current consumer demand ensures a better chance of returns.
Embracing Systemization – You are essentially buying a formula, so closely adhere to the successful templates and procedures the franchisor has developed. Don‘t cut corners or over-customize.
In short, properly implementing the established franchise model trumps trying to reinvent the wheel yourself as a small business. Leverage what attracted you to the brand in the first place.
Outlook for the Future
Franchising has rebounded well from the pandemic economy due to the resilience factors above, and industry observers agree positive momentum will continue.
U.S. franchise business growth is projected to increase over 5% annually through 2025 according to market research firm F&S. [11] Globally, the number of franchise outlets expanded 6.5% last year alone. [12]
Consumers still have an appetite for convenient, affordable dining options, on-demand services, retail essentials, and travel – sectors franchising caters to extremely well.
As franchise consulting group FranNet concludes, "Franchising remains a strategic business expansion plan for hundreds of companies hoping to expand nationally or internationally…Economic return profiles look strong heading into 2023 as the economy steadies itself and consumer spending broadens." [13]
Final Recommendations for Prospective Franchisees
I hope this data provides valuable insights if you‘re weighing a franchise opportunity. Here are my top tips as closing advice:
- Research costs and opt for mid-low cost franchise categories to start
- Have at least the minimum liquid capital amount to weather slow periods
- Study ongoing royalty fees and make sure they align with profit potential
- Consult with a qualified Small Business Association advisor for guidance
- Ask trusted franchisors detailed questions before signing agreements
- Consider a home-based franchise if concerned about commercial real estate risks
Owning a franchise can mean amplifying your chance of business success compared to an independent path. Despite some persistent challenges in today‘s economy, franchising remains full of opportunities in 2024 and beyond.
Sources
[1] Franchise Statistics 2023[2] Franchising Current Trends
[3] Entrepreneur 2023 Franchise 500
[4] Largest U.S. Franchises by Type
[5] Average Franchise Costs
[6] 2022 Franchising Business Economic Outlook
[7] Demographics of Franchisees
[8] Education Levels of Franchisees
[9] Previous Careers of Franchisees
[10] Veteran-Owned Franchises
[11] Franchise Business Economic Outlook 2022-2026
[12] Franchise Growth Internationally
[13] 2023 Franchising Forecast
