Chapter 8The Franchisor Landscape in the United States
Franchising is looking at a possible significant near-term market correction. I’ve been saying this for years, and it still hasn’t happened. Past history shows that as one new franchisor enters the market, another exits, for about 250–350 new concepts per year and approximately the same exiting. The franchisor economics are such that the number of franchisees looking to buy a business cannot support the number of franchisors currently in business, hence the turnstile exits. My prediction is based on multiple limiting factors working in synergy, and leads me to believe market dynamics will only become more pronounced over the next few years.
Dynamics Affecting the US Franchise Market
The factors affecting the franchise market are discussed in the following sections, in no particular order.
Oversaturation of Franchisors
In 2017, research firm FRANdata reported there were about 3,800 active franchise brands in the United States, at or near a record high for franchising. Today, many believe there are over 4,000. A partner at Princeton Equity Group, a private equity firm with a franchising thesis, once told me they had counted 7,000 franchise brands. The actual number is hard to gather because not every registered franchisor is actively recruiting new franchisees. The following image shows the distribution of franchisors by size.
Distribution of US franchisors by size.
Adapted from FRANdata.
Fewer New Franchise Candidates ...
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