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Accurate Franchiser Data
There seems to be so many conflicting numbers - defining:
- How many franchise companies are there operating in the USA?
- How fast is it growing each year ?
Do you know where to find accurate data?
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How Many Franchisers?
How many franchisers are there and how fast is the industry growing? Best estimates are 2,576 business format franchisers in the United States and Canada as January 1, 2006. Here's why.
How many franchise units do these 2,500 franchise networks represent? There were some 622,272 business format franchise units in the United States in 2001, according to a Pricewaterhouse Coopers study (pdf, see pg 13) done for the International Franchise Association on the economic impact of franchising. (There's some interesting charts in the back of the study showing demographic distribution of franchises by state.) The distribution looks a bit like a tadpole, with the larger head being a few gigantic franchise systems and the rest of the tail being much smaller networks.
LOW BALL -- Between 1998 and 2000, FranDATA gathered 1,316 franchise system UFOCs to compile a profile of the franchising industry (pdf) for the IFA Educational Foundation. Given a positive industry growth rate since 1999 and that the UFOCs collected must be a smaller subset than all existing franchise networks, the number of franchiser units must be higher than 1,316 -- at least 1,679 (CAGR=5% for 5 years)
THAT'S IT. If anyone has better numbers or knowledge, please speak up.
There may be more than "we" think
Over the past couple of years I have run across entities that call themselves franchises that seem to fly under the radar of public perception. These are usually B2B or business service offerings who franchise to what equates to a professional (in the modern sense of the word).
The thing that intrigues me was the long record of success exhibited by these franchisors as evidenced by the attitude of the franchisees. I believe the professional or quasi professional status of the actual franchisee elevates the overall relationship which equates to a more equitable relationship. Stated differently the franchisor continually provides a needed service to the franchisee and the franchisee supplies "professional" credentials that are difficult to obtain for the franchisor.
Anyway the point of this is, there seems to be some discretely run enterprises that rely on word of mouth between professional and trade magazines to grow.
FuwaFuwaUsagi
Accurate Franchiser Data
Check out "The Economics of Franchising" by Blair and Lafontaine, published in 2005 by Cambridge University Press. This book uses empirical data to address misconceptions about franchising.
Does anyone know how many franchisors are listed in the latest edition of the Franchise Annual? In 2001, the Annual listed 2,712 in the U.S.
Frandata recently reported 900 new concepts were created during the last three years, http://www.frandata.com/products/samples/FRANdata_20070216_Newsletter.pdf. If there are only 3,000 or 4,000 franchisors in the U.S., this data confirms that franchising experiences significant churn.
general
Bob,
That's a pretty good estimate of franchise systems (2500) with 20 or more units. There are small franchise with less than 20 units that are not yet listed in the Bond's Franchise Directory. My best guess is that there are 500-1000 additional franchise systems with less than 20 units.
Jim Coen
How many Zors are There?
FUWA:
Very interesting observation and comments on your part. As I'm sure you and most readers are aware, the 'Generally Accepted" number of 'active' franchisors in the U.S. ranges from about 2,500 to 3,000. However:
a.) We have a database of "Franchise Opportunities" that contains more than 5,000 companies which have at least attempted to sell a franchise in the past 24 months.
b.) I was recently contacted by one of these 5,000 companies, a company which I had never before heard of. They began to tell me how they started up 12 years previously and had been 'Franchising' for the past 8 years. They claimed to have 25 franchisees, and to have never had a franchisee go under, althought there had been a number of cases where they had gone in and helped the 'franchisee' work through some tough times. Through our discussion, I discovered that they had NEVER seen a need to prepare a UFOC. Needless to say we passed on the opportunity to work with them. How many more like them do you thin are out there?
Another generally accepted statistic, which I can not vouch for it's accuracy, is that of the 'X' Number of franchisors only 1,250 (approximately) have registered in the major registration states for 3 or more consecutive years.
Believe & Succeed,
Dale
FranSynergy, Inc.
Synergizing Franchising!
More Than We Think
Fuwa:
Can you share with us the industry in which the franchisor supplies some service and the franchisee supplies the credentials? Is it health care? This obviously implies the franchisor's pool of candidates is small. Did the franchisor find itself in franchising or did they proactively choose franchising? Companies that find themselves in franchising may be less likely to promote their opportunity as aggressively as those that deliberately choose franchising.
One more question, what service do these professional franchisees value? In my experience, branding professional services, like health care, is not very effective relative to other industries.
Thank you for sharing.
Cindy
Number of North American Franchisers
Jim,
It is difficult to pin down specific numbers but your guide certainly is in the ballpark of what I've heard -- 3500 franchisers. The wisdom on the streets (various franchise development VPs) seem to banter 4,000 franchisers.
Of course, the question on the qualifiers "legitimate" or "active" is -- what does that mean? (Hey Mr. Blue MauMau, why don't you write Robert Bond and find out?) It implies that some companies call themselves franchisers but do not actively have franchised stores. IF that is the case, then Bond's estimate of 2500 franchises seems a reasonable figure.
The International Franchise Association only lists their members of some 800 plus franchisers.
The FTC does not gather or look at UFOCs. Those are registered with certain States. So, asking them how many franchisers there are would not help. I doubt if they would know.
Frankman
as an FYI...
As an FYI the ones I referenced had UFOCs. They real presented a compelling "value" proposition. In fact I only discovered their existence as part of prep work I did for lawsuit.
Anyways, the central idea I was trying to convey is there may be a number of lucrative opportunities that have limited growth prospects (the pool of people they cater to is very well defined) and therefore by advertising in trade journals and the like simply never get in the public eye. Nor should they, as the models are tied to professionals who earn a good dollar and are necessary to the enterprise.
FuwaFuwaUsagi
smaller franchisors
I'd be very surprised if there were less than 500 - 1000 systems in the U.S. in the under 20 unit stage. That would only be 10 - 20 per state across all categories - food, especially QSR could probably easily account for that. Each town big enough to qualify as an MSA probably has a handful.
I'm constantly in awe of the size and vibrance of the U.S. economy
to Cindy
Hello Cindy,
You queried:
Can you share with us the industry in which the franchisor supplies some service and the franchisee supplies the credentials?
My reply:
I found this in three areas.
1) Insurance Adjustors
2) Radiology
3) Optometry
I am very familiar with the Insurance Adjustor one. Basically the cost of entry is having your CPCU (Chartered Property Casualty Underwriter) and several years of multi-line insurance adjusting experience. The CPCU is not the easiest credential to get. You gain business in two ways. One as a public adjustor, two for insurance companies with no offices in your areas, and three during times of large losses. The franchisor serves as a nationwide clearing house and downstreams contracts to you. Basically they provide you with the contacts and they take a % of what you rake in. Public adjustment can be very, very lucrative. Usually as a public adjustor you take a percentage of the total adjustment.
I am far less familiar with the other two but ran across both of them at a zee convention a the hotel I was staying at. They all seemed like some darn happy franchisees.
All three of these look like win-win situations to me. Each and every day the "zee" learned what the value of the franchise was.
FuwaFuwaUsagi
Comparison of North America and China Franchiser Units
You ask a tall question, oh great holy cow -- er, I mean Mr. Cowhollow. As you've observed, throw out a number and some franchise executive is probably quoting it. As an old franchise executive, I've heard as low as 1,000 to as high as 5,000 franchise systems in North America.Of course, this depends on what we mean by franchise systems and where.
Globally, terminology can confuse us even more, with legal and conceptual interference from one language to another.
I've experienced this just recently. You see, I read, write and speak Chinese. Learned it the hard way with blood, sweat and study as an adult. On occasion I read Chinese-language newspapers from the People's Republic of China and a few of their English-language papers written largely for us foreigners. It was humorous to read a story in English a few months ago that China had some 40,000 franchisers. I mean. I know that country and I know the players. That cannot be right and I immediately understood why the number was incorrect.
The English-language version of the People's Daily said that China had 1,900 franchisers compared to America's 2,000. (Take note of America's number. Here's one reference.) Without a reality check, some franchise development executives may get very excited about such large numbers. They might think that their networks need to expand into China's market NOW because everyone else seems to be there, or else they might think that China's indigenous franchise market is so developed that it has become the world's second largest franchise market.
Franchising is still in its infancy in China. Some laws have been enacted just recently, but as any seasoned international executive knows, what is on paper in China and what is reality are two different things. The problem is a basic misunderstanding of what a franchise is. It is referrred in Chinese as a "liansuodian", which is mistakenly translated into "franchise" in English, when in actuality it is closer to the meaning of "chain". The legal concept of chain stores and franchises have not clearly matured apart yet.
Put a "getihu" (a new private independent company as opposed to state-owned enterprises) that branch into two units and you now have a chain. The number of "franchises" in China will be greatly, greatly exaggerated. They are talking kumquats, while we are hearing oranges.
So Alvin Toffler got it right when he said: "You can use all the quantitative data you can get, but you still have to distrust it and use your own intelligence and judgment."
A few global franchise development executives will do an immediate reality check when they read such false statistics. I can almost hear the alarms go off in their mind.
"Hey, I know the major franchise systems here and abroad. There's just a handful that I know who are working in China."
But it's not just China. Numbers can be bantered around here as well without being clear on what we are talking about. Are we talking about product distribution franchisers AND business format franchisers? Maybe the numbers a country throws out include sports, movie and electronic game franchises. Hard as this is to believe -- sometimes people inflate the numbers when it's in their best interest to inflate the numbers.
Thanks Fuwa
Fuwa:
Thanks for your response. It's a pleasure to hear about happy franchisees. There can be a number of benefits outside of branding that franchisors offer franchisees, like contracts and centralized systems. These are good opportunities for emerging franchisors who haven't really established a brand yet. Who are the insurance adjustor franchises? I haven't seen any!
Thanks.
Are the numbers right?
Chances are that if you know the number of licensed master franchises in China and count their number of stores or units, you will likely not have listed all units that these licensed partners are holding.
Why?
It is amazing to see how many American franchisors are naive enough to believe with their small investment in their international department (if they have one) and a quick annual visit to the country, that they will establish the trust with their chinese partners and actually obtain the truth about how many units they actually operate. These franchisors may get the guided tour around Beijing or Shanghai wherever the masters head office is located and a few stores exist, but how you going to assess and control what is out about in this huge country?
Chances are that your partner across the pacific opens a few stores under your name and fulfill the required looks and logos. Once that expertise and training is transferred across and they know how to run a store, they will run their own competition and open a few times the amount of stores under their own name.
So, all those small fish franchisors with some 30-100 units in the USA, no real committment towards the international arena but eager to sell an expensive country deal, think again who is taken for a fool. Oh and good luck getting your royalties home!
Cindy...
Cindy:
I honestly do not remember. I am on the road as usual, (Vegas this week if anyone wants to get together) so I don't have any reference materials.
You might be able to find out if you get your insurance via a broker rather than a captive agent. My experience is most captive agency companies have their own adjustors and most brokerage types use independents. Some public adjustors might know.
FuwaFuwaUsagi
Rule of Law Needed
"they [International Master Franchisees in China] will run their own competition and open a few times the amount of stores under their own name."
That is a very good observation. Of course, even if the franchisor doesn't know about it, master franchisors in China would have their own problems enforcing franchise terms with their own franchise system.
Franchising is a legal structure that requires the rule of law.
-don-
The Rule of Law
All countries have The Rule of Law that is promulgated by those who govern the masses in the interests of the special interests or in the interests of the masses, or both!
I didn't understand the implications of your second paragraph, Don! Are you implying that there is no rule of law in China? Or, is this a comment about Communism or the people of China?
Please clarify.
IP protection in China
When it comes to protection of intellectual property, to say that Chinese law is lax would be an understatement.
Definition of Intellectual Property
I imagine the root problem would be in the Chinese and the US recognition and definition of the intellectual property protected under the franchise agreement.