January 19, 2021 6 min read
Nobody expected 2020 to be a year of growth. With a pandemic raging, the future seemed too uncertain. Who could accelerate their business, let alone open a new one? What potential new franchisee would plunk down their up-front costs in this environment — and maybe even open a storefront?
But now 2020 is done and the numbers are in. There are two ways to look at them.
Let’s start with the bad news. The rate of new unit openings shrank, especially internationally. From July 2019 to July 2020 (which is the 12-month span we look at for the Franchise 500), the companies that made our ranking added 6,935 international franchises — a 3.4 percent increase. That number was down significantly from 2018 to 2019, when these companies added 12,064 franchises, a 6.3 percent increase. This marks the first time in several years that international growth dipped below U.S. growth. But there was also a dip in new U.S. franchises: Only 7,141 new units were opened between 2019 and 2020, compared with 9,110 between 2018 and 2019.
Now here’s the good news. Growth did happen. It may have been slower than in years past, but units were added, sales grew, new franchisees chased their dreams, and businesses met new and sometimes increased demand. Consider it: Overall, the companies that ranked in the Franchise 500 had a combined total of 510,051 units open as of July, with 472,200 (a little more than 92 percent) being franchise units. (The rest are company-owned.) Net growth for these 500 companies over the year was 14,354 units — a 2.9 percent increase.
Who were the big winners? Some are to be expected, and others experienced a pandemic-related boost.
First, of course, there is food. Food franchises still make up the biggest portion of our list, and food accounts for more than a quarter of the top 100. COVID-19 did significant damage to the restaurant industry at large, but many food franchises successfully adapted and found new ways to serve customers. Smoothies/juices, chicken, and sandwich franchises experienced especially notable growth, and the newer categories of acai bowls and Mediterranean food showed potential as well. But the food category is also showing signs of strain. The number of food franchises that make our Franchise 500 list has been sliding for years, and this time was no exception: Only 93 food franchises made the list, compared with 103 last year. Of quick-service restaurants, which is the largest food category, only 80 ranked — compared with 86 last year.
So who’s up? Maintenance. It rose last year and continues its ascent, with 76 companies represented on our new list. That’s no surprise, considering that many were deemed “essential” businesses and could easily accommodate social distancing and other COVID-19 recommendations. Also, maintenance franchises are some of the least expensive franchises to buy on the list — quite unlike restaurants, with their high up-front costs. This makes them an appealing option for people who might be looking to start their own business in the midst of job market uncertainty. Cleaning and restoration companies in particular are doing well, and many have added COVID-mitigation-related services to their offerings.
Children’s businesses also had a good 12-month period, with 49 ranked companies (compared with 42 last year). Tutoring franchises in particular ranked well, with three in the top 100 (including Kumon, at #6). The child-care category also has three brands ranked in the top 100 and looks strong overall. Children’s enrichment franchises had a decent showing in the ranking, particularly those focused on STEM subjects. That’s interesting because so many of their models are based on being after-school programs — and with so many schools closed, face-to-face and group interaction has often followed. So what lifted these children’s enrichment programs? Many launched virtual programs, which surely appealed to parents who were desperate for something to engage and educate their kids while at home.
Here’s another one that won’t come as a surprise: Health-related franchises did well, growing from nine ranked franchises on last year’s list to 13, with seven of those in the top 100.
Finally, it’s worth looking at the age of franchises that ranked. Times of crisis (now included!) can create a changing of the guard — destabilizing old incumbents and creating opportunities for upstarts to gain relevancy. Some of that may play out in our numbers. While this Franchise 500 list contains many older franchises, they tend to rank highly thanks to age, size, and brand recognition. Meanwhile, newer franchises are making their mark. In this list, 26 percent of companies have been franchising for less than 10 years. That’s compared with less than 18 percent of last year’s list.
What will happen in the coming year? That’s, of course, up for speculation — though as you’ll read later in these pages, many first-time franchisees and franchisors launched their businesses during the pandemic, many made changes that could set them up for success in years to come, and franchise expert Mark Siebert writes a convincing essay about how 2021 has all the elements of a boom year for franchising.
We’ll see what happens soon enough. Data collection for our next list begins this summer!
To see our complete Franchise 500 rankings, please click here, or view more stories at the links below.