Multi-Unit Ownership Rules MUOs control 54% of all franchised units WRITTEN BY Darrell Johnson
Multi-unit franchise operators control a remarkable 54% of all franchised units in the U.S. today. Currently, 43,212 multiunit operators control more than 223,213 franchised units in the U.S. The steady expansion of multi-unit dominance had its start in the late 1980s, so it is relatively recent in the context of the franchise business model. As recently as 8 years ago, a majority of units were controlled by single-unit operators. The pace of change to multi-unit dominance has been consistent and predictable, with a current rate of change of about 1 percent each year. There are two big drivers of this change. The first is that we raised a generation of franchisees with growth on their minds. They pushed through the older “buy a job” mentality with business plans aimed at multi-unit expansion from the start. The second driver is cooperative franchisors that went from being concerned by too much franchisee power to actively designing development programs around multi-unit models. Some of today’s largest franchisees are: NPC International (1,599 units, mostly Pizza Hut); Flynn Restaurant Group (1,245 units, mostly Applebee’s, Arby’s, Taco Bell, and Panera Bread); Target Corp. (1,066 units, mostly Pizza Hut Express); Carrols
Restaurant Group (848 Burger Kings); and the Dhanani Group (789 units, Burger King, Popeyes, and La Madeleine). As with these five franchisees, industries with the highest concentration of multi-unit franchisees are mostly found in the food space. As the table shows, 82% of franchised QSR businesses are controlled by multi-unit franchisees, followed in the food space by sit-down restaurants at 72%, and baked goods at 57%. Also of note is the rise of some non-food industry classifications, such as beauty-related, clothing and accessories, automotive, business-related, and real estate. On the other end of the spectrum, none of the photo-processing related franchised businesses are controlled by multi-unit franchisees. There are also low concentrations of multi-unit franchisees in the publications (0.56%) and travel business (3.2%) verticals. Perhaps the most important point to note here is that multi-unit franchising has penetrated almost all industries where the franchise business model is found. There are some interesting geographic distinctions as well, creating a sort of North-South divide. Only four states have a majority of units in the hands of single-unit franchisees: New Jersey (55%), Delaware (56%), Vermont (57%), and Washington D.C. (59%). West Virginia, at 61%, has the highest concentration of units controlled by multi-unit franchisees. All other states with high concentrations of units in the hands of multi-unit franchisees are in the South and Midwest, and include Arkansas, Missouri, Ohio, and Oklahoma, each with 58% to 59%. ADDITIONAL FINDINGS Here are some more statistics that shed light on the profile of multi-unit operators in 2019: • Based on a large sampling of franchised businesses for which gender information was available, 24 percent were women-owned, and almost 40
NUMBER OF FRANCHISED UNITS CONTROLLED BY MU OPERATORS Single Unit 2-5 Units 6-10 Units 11-25 Units 26-50 Units 50+
2
0
50,000
100,000
150,000
200,000
2020 Annual Edition
TOP 10 INDUSTRIES BY MUF CONTROL
% Multiple Units
QSR
81.96%
Restaurants (sit-down)
72.26%
Beauty-related
71.50%
Baked goods
57.14%
Clothing & accessories
54.76%
Automotive
53.79%
Retail food
51.94%
Business-related
51.89%
Real estate
51.57%
Frozen desserts
50.60%
percent of these were controlled by multi-unit franchisees. • Of the more than 43,000 multi-unit franchisees, 9% (about 3,900) operate units across several brands. While that doesn’t seem like a high percentage, it is growing quickly. • Of the roughly 450,000 total business format franchised units in the U.S., about 411,000 are represented in the graph below. Compared with similar graphs from a few years ago, it shows that not only do we have a growing concentration of units controlled by multi-unit operators, we have a growing concentration of units controlled by larger multi-unit operators. Across all units, the average multi-unit franchisee owns 5 franchised locations, up from about 4.8 in 2011. The rise in unit ownership among multi-unit operators has been a factor in the growing interest from private equity and other types of investor groups to invest in franchisees. This was led by consolidations among franchise operators, as these investors are increasingly targeting multiple acquisitions of the small to medium-sized franchisees and consolidating them under their stewardship. Consolidations have led to a faster uptick in the number of units held by larger operators as compared with their smaller counterparts. With the growing investor interest, it’s a good time to be a multi-unit operator. DARRELL JOHNSON is CEO of FRANdata, an independent research company supplying information and analysis for the franchising sector since 1989. He can be reached at 703-740-4700 or djohnson@frandata.com.
