What Do We Call You?
Last month we held a couple of discovery sessions with a quick service restaurant (QSR) based in California. Legally, they were a franchisor because they had a new franchise disclosure document (FDD) approved by the federal trade commission and the State of California. They also owned several of their own restaurants, but they hadn’t awarded any franchises yet, so they had zero franchisees. Do you still consider them a franchisor, technically?
Current estimates from the International Franchise Association, published in their 2023 Franchising Economic Report, put the total number of franchise brands (franchisors) at approximately 9,000, with more than 800,000 operating franchisee establishments by the end of this year. While the report contains data that categorize franchise brands by geography, industry and economic output, they don’t take time to tell us where these thousands of franchisors are in their own life cycle. How many franchisors are like our new client – legally a franchisor but without any actual franchisees?
Take Me Back To 2017
While the definition above includes similar words, like “emerging”, that term is also consistently used by franchise professionals and industry media, typically to describe franchise brands with less than 50 or 100 franchisee establishments. According to this 2017 post from FPG, they created a term called “Early Stage” to describe fledgling franchisors with less than 20 units. That’s followed by an inflection point, about five years in, which then refers to franchisors with 21-100 units as “Emerging” before hitting another inflection point at 100 units. While these numbers are obviously dated, we tend to agree with some of these points, while others might find that many franchisors don’t have any challenged getting beyond 20 or 30 units, but getting to 50 is certainly a challenge for most. For our purposes, we’ll refer to “Fledgling Franchisors” as having 0-25 units and concede that “Emerging Franchisors” likely have 25-99 units.
How many Franchisors in 2023 are Fledgling?
Since the 2023 IFA report didn’t provide life cycle data about franchise brands for 2023, we might make some rough forecasts based upon the data that FPG shared nearly six years ago. At that point in time, approximately 60% of franchise brands had zero to 25 units. If this Fledgling Franchisor ratio were applied to our total franchisor count today, that would equate to about 5,000 franchise brands who fit the “Fledgling Franchisor” category perfectly. Another aspect included within these studies in time in years; but it seems arbitrary to state that a brand that’s been franchising for 10 years should be considered “Regional” even if they only have five franchisees within their system. Another question that comes up, since multi-unit franchisees have become so predominant over the past decade or so, is “store count” still relevant if those first 20 units might be owned by just two or three franchisees?
What Support Do Fledgling Franchisors Need?
Why is this franchise life cycle topic so important? If there are 5,000 franchisors within the United States that are franchisors legally recognized by the FTC, but 25% of them have zero franchise units, and 36% have fewer than 25 units (the 2017 data) that leaves thousands of franchise brands needing some genuine help to get beyond that first inflection point – moving from Fledgling to Emerging. For Top 2 Bottom Business Solutions, we believe these young companies are ideally suited to truly change how they compete against the more mature franchisors they’ll be compared against. There are also opportunities for T2B to help establish accounting & financial reporting systems that could establish a great competitive advantage to these fledgling franchisors since so many have not already established franchisee relations the might require painful and costly corrections to their brand in the future.
To find out more about the education, training and reporting systems that Top 2 Bottom is developing for Fledgling Franchisors, please visit our T2B Franchise Accounting page today!