5 Largest Restaurant Chains, Why It Matters

CHICAGO — In this year's economic survey of franchising firms, food research and consultant firm Technomic Inc. observes that restaurant chains still largely think their main avenue for growth is selling franchise units. During tough economic times, franchisors are finding it necessary to sweeten the pot by providing buying incentives, such as lending franchisees money to buy their franchises.

Data: Technomic, Inc.

"Attractive deals can include waived fees and lower royalty rates," declares Darren Tristano, executive vice president of Technomic. "A focus on growing the franchise system allows franchisors to spend less on restaurant-level operations and redirect capital toward systemwide marketing and brand initiatives," he observes. He explains that the act of selling franchises pushes franchisors to think in terms of marketing the network's brand, as opposed to focusing on operational issues of company-owned restaurants.

The findings are published in conjunction with the release of the top 400 restaurant firms by sales volume and restaurant units that  franchise. Professor Scott Shane, professor of Entrepreneurial Studies at Case Western Reserve, explains why this list is important. Shane, who has conducted statistical studies and written books on choosing a franchise, has commented to Blue MauMau before that older and larger franchise networks give an edge of safety in the business game of chance. Shane states, "If a franchisee candidate wants to be more confident that a franchisor will be there to provide its part of the arrangement towards the end of the ten year contract that they are about to sign, then they should look for systems that have been in operation for more years, systems that are part of businesses that have been in operation for more years, and systems with more total outlets."

Subway and Burger King, with franchise sales of $10 billion and $8.9 billion, are numbers two and three, respectively, of the chains with the greatest sales. But far ahead of the pack is McDonald's with $30.9 billion in U.S. systemwide sales.

Franchise consultant Craig Slavin, president of Franchise Architects and Franchise Navigator, observes that the larger, more sophisticated companies operate very differently than smaller companies. They have a better track record at the consumer level in terms of understanding how the business model should be deployed. They constantly perform R&D on new products. They test products in their own locations, source the ingredients and create and build consumer awareness programs that smaller companies simply cannot provide.

Tristano suggested to Blue MauMau that franchise buyers should find both this list of the largest restaurant franchises, the Franchise 400 report, and the Franchise 500, a listing of which brands produce the highest numbers of rich franchisees, particularly useful when considering investing in a franchise.