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Breaking Down Entrepreneur Magazine’s Franchise 500 Rankings

QSR brands like McDonald’s and Taco Bell retain top spots; Great Clips maintains growth despite market saturation; fitness concepts like Orangetheory hit the ground running.

By Katie LaTourStaff Writer
SPONSORED 8:08AM 02/05/19

This year marks the 40th since Entrepreneur Magazine first rolled out its “Franchise 500” rankings, and the competition remains stiff. The magazine utilizes a rigorous set of criteria—franchises are assessed across five pillars including: costs and fees, size and growth, support, brand strength, and financial strength and stability. Entrepreneur includes additional lists with the publication of the Franchise 500, organized by category: “Any Budget,” “Top Brands,” “Fastest Growing,” “Top New” and “Top Global.”

Sean Fitzgerald is the Chief Development Strategist for 1851 Franchise and No Limit Agency*. He’s followed the Franchise 500 rankings over the course of his 30 years in franchising and franchise development. Below, Fitzgerald breaks down noteworthy data points for the 2019 Franchise 500.

Overall: Surprises from the Top 10 of the Franchise 500

“I’m surprised to see Sonic at No. 3,” Fitzgerald said. “No surprise for McDonald’s, Dunkin, Taco Bell… Sonic is a surprise because it’s only showing 1 percent growth at 36 units. Those are good numbers, but they’re not blowing the doors off anything.”

The investment range to open a Sonic franchise location, according to the 2018 data from the brand’s Item 19 of the FDD, is $800,000 to $3.6 million.

“I’m surprised they rank so high because growth is OK…they’re a 3,300-unit franchise that only grew by 1 percent. It’s hard to say ‘we have strong growth’ when [readers] can’t look at their Item 19,” Fitzgerald said. “It’s just interesting because Sonic doesn’t have quite the same brand presence as some of the others [in the top 10 rankings].”

Fitzgerald also noted Culver’s as a surprising brand to see in the top 10.

“Culver’s grew by the same number of units as Sonic—36 units,” Fitzgerald said. “But that’s 1 percent growth for Sonic and 5.3 percent for Culver’s because they only have 600-some locations.”

Given this, Fitzgerald explained, it’s unclear what elements of Sonic’s model and/or performance clinched its spot—especially when stacked up against QSR giants like Taco Bell, which grew by 219 units last year, and almost 600 in the last three years.

Overall: Brands with Notable Momentum from the Franchise 500

“Planet Fitness is one,” said Fitzgerald. “Planet Fitness opened 600 units in the last three years and 197 units last year. They have a total of 1,500 locations in the U.S. That’s super impressive as far as growth goes.”

The franchise’s success is not surprising at a moment when both Baby Boomers and Millennials are looking for convenient fitness options that fit their busy lifestyles—in fact, the fitness segment as a whole is projected to continue to grow in 2019.

“What makes Planet Fitness so popular is that the industry is so strong,” Fitzgerald said. “It has mass appeal…It’s the thing where, for $10 a month, you keep it even if you don’t use it.”

Fitzgerald also gave a nod to Planet Fitness for brand recognition.

“It’s a really well-known, strong brand,” Fitzgerald said.

Fitzgerald also noted the rise of boutique fitness offerings like Orangetheory (which ranked No. 48 on the Franchise 500), commending its “hot concept” and “hockey stick growth at 600 units in the last three years.”

Fitzgerald noted as well that Great Clips* showcased impressive momentum.

“You take a market that’s saturated and then open almost 600 units in the last three years…that’s super impressive,” Fitzgerald said. “The low investment and semi-absentee ownership model makes [Great Clips] super ideal for people looking for that franchise model that’s an easy option for them. You’ve got recurring revenue. They now have a check-me-in app and it pulls up all the locations near [clients] and shows wait time, so [clients] can choose [their] location and check-in, which is really productive for their units. So it’s not surprising to see them in the top 10.”

Pest control franchise Mosquito Joe* also ranked high on the list overall, coming in at No. 1 in the pest control category and No. 47 overall.

“It's an honor to be recognized by Entrepreneur Magazine's Franchise 500,” said Mosquito Joe president Lou Schager. “Specifically, to be awarded No. 1 in category for the third year in a row is a tribute to our system, our corporate staff and of course, our dedicated franchisees across 35 states plus D.C. Potential business owners seek an opportunity where growth is sustainable, and year after year, the recognition Mosquito Joe has been afforded demonstrates just that. We look forward to building on this momentum for years to come.”

Thoughts on Category List: Top for Veterans

“It’s interesting to me that three of the top five have to do with mechanical,” Fitzgerald said, referring to top-ranked Snap-On Tools, third-ranked Precision Tune Auto Care and fourth-ranked Matco Tools.

“It could have to do with a low cost of entry,” he said. “Or that might be more attractive for someone with a military background as opposed to the traditional food franchise model. For those transitioning back into civilian life, those lower-investment, service-based franchises tend to serve their needs best,” Fitzgerald said.

Thoughts on Category List: Fastest Growing

“uBreakiFix [No. 26] and CPR-Cell Phone Repair [No. 30] are both on there pretty high,” Fitzgerald said. “But there’s going to come a time when our phones don’t break… we can’t be far away from unbreakable phones.”

Fitzgerald explains that this should give pause where growth is concerned. Referring to a nearing shift to unbreakable devices, he said:

“The question that is fair to ask is: Can their model adjust to such a big shift?”

Fitzgerald likened the situation to that of the move away from DVD and Blu-Ray rentals (RIP Blockbuster) to streaming services like Netflix and Hulu.

“Netflix pivoted from DVDs to streaming [when that happened],” Fitzgerald said. “Samsung is already saying they’ve invented an unbreakable phone screen, so how can uBreak and CPR’s models adjust?”

Thoughts on Category List: Any Budget

Brand uBreakiFix took the very top spot in this category, followed by student enrichment services franchise Kumon Math & Reading, CPR-Cell Phone Repair, Matco Tools and home buying and renovation brand HomeVestors. Home services and senior care franchises occupied the majority of the remaining top 15 spots.

“My theory on the current economy is that higher investment brands are doing not as well because when the market does well, people trust the market—there’s no pain point to get them to pull their money out,” Fitzgerald explained. “When the economy isn't doing as well, people will pull money out to start their own business and have something they can control, that feels less risky.”

Fitzgerald broke down this inverse relationship, saying:

“That means that the economy being down is actually good for franchising. At the start of 2019, since the economy’s good, people aren’t leaving their executive careers, so it’s impacting high-investment franchises. When the economy is good, mid-level earners feel comfortable taking a low-investment business on the side—they have the supplemental income of their spouse, for example, to grow their business. So it makes sense that low-investment franchises will dominate at this point in the economy.”

That means “primarily service franchises, mostly under $200,000 to get in,” Fitzgerald said.

Thoughts on Category List: Top New

Fitzgerald called out the No. 3 franchise, FYZICAL, a physical therapy franchise.

“It’s a great thing to franchise because most physical therapy people know PT, but don’t necessarily know business. So taking that industry and franchising it—that allows the model to run while PTs to focus on what they’re passionate about.”

Fitzgerald noted that boutique services dominated Top New list, with few traditional QSR brands coming to market.

“That relates to a challenge that has faced franchising for years and years,” Fitzgerald said. “The general public’s perception of a franchise was McDonald’s. It’s a sense of franchising as food-related and that it’s not applicable to anything else. But the reality is that franchising as a model is applicable to all kinds of business.”

Fitzgerald pointed out that a franchising model is especially friendly to those new to business ownership—the diversified responsibility and costs mitigate risk, allowing franchisors to expand and franchises to operate their business with support and within a proven system.

Thoughts on Category List: Top Global

In contrast to the Best New list, QSR franchises largely locked up the top 10 spots in the Top Global category. Fitzgerald said that this makes sense.

“QSR growth comes from global markets. Quick-service restaurants will continue to dominate in global growth because there’s such strong brand awareness that they can break into new markets with relative ease. Internationally, American food has that buzz appeal—it’s something consumers want to try and that helps growth,” Fitzgerald said.

Closing Thoughts

“It’s very much worth noting that QSR really is dominating in the top four spots of the Franchise 500,” Fitzgerald said, referring to 2019’s leaders: McDonald’s at No. 1, Dunkin’ at No. 2, Sonic Drive-In at No. 3 and Taco Bell at No. 4.

“There’s been a consumer shift to healthier fast food and increasing regulations (joint employer, etc.) over the last several years. But even with that, QSR brands are still leading,” Fitzgerald said.

Fitzgerald acknowledged that such legacy brands will probably never lose their hold on the top spots, “because they have so many units and market saturation,” but he also followed with: “Given that, the fact that those brands still have growth is huge.”

*This brand is a paid partner of 1851 Franchise. For more information on paid partnerships please click here.