Our annual ranking of America's top franchise opportunities
BY TRACY STAPP
Article from The Entrepreneurs
Our 33rd Annual Franchise 500 ranking reveals popular industries and the trends making an impact on their future.
Top 10 Franchises for 2012
RANK
FRANCHISE NAME
STARTUP COSTS
1. Hampton Hotels
$3.75M - 13.11M
2. Subway
$84.8K - 258.8K
3. 7-Eleven Inc.
$30.8K - 611.1K
4. Servpro
$132.05K - 180.45K
5. Days Inn
$202.17K - 6.76M
6. McDonald's
$1.07M - 1.89M
7. Denny's Inc.
$1.13M - 2.4M
8. H & R Block
$35.51K - 136.2K
9. Pizza Hut Inc.
$295K - 2.15M
10. Dunkin' Donuts
$368.9K - 1.74M
Three Franchise Industries to Watch
Entrepreneur's 33rd Annual Franchise 500® is a story of staying the course. Hampton Hotels, last year's surprise No. 1, held that spot, leading many companies that have long dominated our rankings.
In fact, even though Hampton has been franchising since 1984, it's the youngest franchisor in the top 10.
These are companies that embody the appeal franchising holds for so many, in good times and bad: the strength that comes not just in numbers, but in experience.
Speaking of numbers, the companies in our top 500 added 13,725 franchise units between 2010 and 2011. That's a 16 percent improvement from the previous year's growth--a positive sign that things are looking up for franchisors and franchisees alike.
And while older franchisors are leading the way, new concepts are making their mark on the franchise world as well--and encouraging those more experienced companies to keep innovating. Here's a look at three of the most popular industries in this year's Franchise 500® and the trends that are shaping their future.
Quick-Service Restaurants
Fast-food, fast-casual, quick-service. Whatever you choose to call them, these alternatives to full-service restaurants continue to gain popularity among customers and entrepreneurs. The category makes up more than 20 percent of the Franchise 500® and includes some of the longest-running franchises on the list--such as the oldest, A&W Restaurants, which has been franchising since 1925. But it's also full of fast-growing innovators.
Hamburgers have earned a special place among this field. The number of ranked burger companies is double what it was last year. And though established giants like McDonald's dominate the top of the list, younger companies like Smashburger are to thank for beefing up the category and challenging the stalwarts to step up their games with more gourmet offerings.
The frozen yogurt category, meanwhile, has been on a bit of a roller coaster the last few years. The sudden resurgence in the treat's popularity flooded the market with inexperienced new franchise companies--many of which didn't last. But the companies that survived the hype seem to be stronger for it. In fact, five fro-yo companies are among the 100 fastest-growing franchises on our list.
Personal Care
Although some personal-care services, such as tanning salons and cosmetics, have fallen out of vogue, the category overall is healthier than ever. Encompassing everything from hair care to hair removal, personal-care franchises make up almost 10 percent of this year's rankings.
Fitness franchises offering convenience and low cost (to both customers and franchisees) continue to demonstrate impressive growth. But there's a new factor emerging in this arena: fun. Newer franchisors are challenging the exercise-bike and circuit-training status quo with options such as kickboxing and martial arts. The trend toward recreation-based fitness is even more evident in our children's fitness category, where Soccer Shots leaped into the No. 1 spot.
Another personal-care category, in-home senior care, hardly existed just 15 years ago, but now it's hard to imagine the franchise world--and the world at large, for that matter--without it. In fact, it's the biggest single category in this year's Franchise 500®, with more than 34 companies represented--and 24 of those making the ranking. In spite of all that competition, new senior-care franchisors continue to spring up every year. And with the first baby boomers turning 65 in 2011, the demand is only going to grow.
Retail
Retail is one of the industries hit hardest by the recession, but franchised retailers have held up well overall, and many have even seen impressive growth in spite of the tough times--especially those that offer cash-strapped customers a good deal.
Thrifty shopping has come to be considered not just smart, but trendy as well. A number of resale franchisors have ridden that trend to new heights in our rankings, particularly in apparel and accessories, where teen and young adult store Plato's Closet climbed into our top 100 for the first time. Resale and consignment concepts also dominate children's retail, and you'll even find franchised stores that buy and sell used electronics, sporting goods and musical instruments.
About the Franchise 500®
Entrepreneur's 33rd Annual Franchise 500® is the result of months of work and years of experience. Here's the story behind the first, best and most comprehensive franchise ranking in the world.
The process began in July 2011, when we asked franchisors to participate in this year's survey. Each submission was vetted before being entered for data analysis, with 799 companies making the first cut. Of those, the top 500 made the Franchise 500® ranking, based on financial and statistical data from July 2009 through July 2011.
Only franchise companies that supply full Franchise Disclosure Documents (FDDs) or Canadian Disclosure Documents and whose information is verified by Entrepreneur can be listed in this issue. To be eligible for the Franchise 500® ranking, a franchisor must have a minimum of 10 units, with at least one in the U.S. The company must be seeking new franchisees in the U.S., and it cannot be in Chapter 11 at the time the ranking is compiled. (The exception to these rules is Canada-based companies that are expanding only in Canada.)
All companies, regardless of size, are judged by the same criteria: objective, quantifiable measures of the franchise operation. The most important factors include financial strength and stability, growth rate and size of the system. We also consider the number of years a company has been in business and the length of time it has been franchising, startup costs, litigation, percentage of terminations and whether the company provides financing. Financial data is analyzed by an independent CPA. We do not measure subjective elements such as franchisee satisfaction or management style. The objective factors are plugged into our exclusive Franchise 500® formula, with each eligible company receiving a cumulative score. The 500 franchises with the highest cumulative scores become the Franchise 500®.
Franchise companies are listed according to their industry categories. Ranked companies are shown under the headings with their rank listed to the left of their names. As an additional research tool, we list franchise companies that are not ranked in the Franchise 500®. These companies are listed in alphabetical order under the "Not ranked" heading within each category. If you're searching for a specific company, check the Index on page 210. The full ranking in numerical order is available online at entrepreneur.com/franchise500.
Remember that the Franchise 500® is not intended to endorse, advertise or recommend any particular franchise. It is solely a research tool that can be used to compare franchise operations. Entrepreneur stresses that one should always conduct an independent investigation before investing in a franchise. Read the FDD and related materials carefully, get help from an attorney and a CPA in reviewing any legal or financial documents and talk to as many existing and former franchisees as possible and visit their outlets. The best way to protect yourself is to do your homework.
Research compiled by Tracy Stapp with assistance from Mahendran Arullendran, Ben Humphrey and Kirsten O'Brien; financial analysis by David R. Juedes, CPA; graphic design by Megan Roy and Nancy Roy; additional assistance from Landin Gee, Wendy Narez, Monica Santana, Clarence Taylor and Anais Martinez.
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