The Wonder Years A look at how franchising and the Franchise 500® have changed over the past 20 years.
The next time you open your wallet, remember that one out ofevery three dollars you are carrying is likely to be spent onproducts or services of a franchised company. There are more than400,000 of them in the United States, and these firms account fornearly one-third of all retail sales. -Entrepreneur's 1stAnnual Franchise 500®, March 1980
It seems there's nothing new under the sun. And the onlyconstant in life is change. Over the past 20 years, franchising hasseen its share of constancy-and of change. We realized back in 1979just how monumental this marketing concept called franchising couldbe. And we took a leap of faith, inventing a ranking concept calledthe Franchise 500®.
On the 20th anniversary of our highly celebrated Franchise500®, we've taken time to reflect on how much has reallyhappened since our humble beginnings. Here, some excerpts from ourfirst Franchise 500® issue, with a flash forward to 1999:
Where is the Next McDonald's?
On behalf of our readers, we're still asking this question.Some of the answers may be surprising, considering that when theFranchise 500® started 20 years ago, a spate of today'sfranchising stars didn't even exist. Auntie Anne's, TCBY,Jackson Hewitt, Moto Photo and Fastsigns were unheard of then. Theentrepreneurs behind Yogen Früz, this year's No. 1franchise, as well as Papa John's Pizza, were still in highschool. Hot franchise concepts back then included conveniencestores, doughnut shops, family-style restaurants, furniture storesand pancake houses.
Some categories are perpetually hot: Fried chicken, Mexicanfood, pizza and, of course, hamburgers were, and still are, amongfranchising's most popular offerings. Some opportunities boomedand then fizzled, like independent video rental stores, which weregobbled up by Blockbuster faster than a Spielberg movie hits No. 1.Still others have come and gone and come again. Take tanning salons(please). In 1980, we wrote, "While the jury is still out onthe long-term viability of the suntanning parlor concept,there's no question that growth in this business has beendramatic." In 1999, after a long sabbatical, this category isonce again back in the artificial limelight.
Many of today's Franchise 500® institutions were justgetting rolling 20 years ago. Subway had 134 franchises, plus 16company-owned stores; now the company has almost 13,400 locationsworldwide. And what of the epitome of franchising? McDonald'shad a seemingly impressive total of 5,749 stores in 1980; it'ssince solidified its status as a global icon, with over 16,000franchises and nearly 5,000 company-owned locations worldwide.
Modern Conveniences
Robert Feinstein, chairman of the board of United Rent-All, amajor equipment rental franchise, tells of a time when he waslunching at a McDonald's outlet and overheard two womentalking. "They said they'd eaten dinner there the nightbefore and had breakfast there earlier in the day. I asked why theycame back so often. 'Because it's fast andeasy!' " -Franchise 500®, March 1980
One of the most significant changes in franchising, reflected bythe Franchise 500®, has been the transition from a retail to aservice-oriented market. Practically everything required astorefront location 20 years ago-today, the focus is not onlocation, location, location, but convenience, convenience,convenience. Services that save people time are always indemand.
Technology and the World
The $400 hobby computer is an example of where technology isleading us in one respect. Computer stores staffed by specialistsare blossoming all over the country to capitalize on this trend. Asthis technology becomes more and more readily available to the massmarket, consumer acceptance will increase dramatically -Franchise500®, March 1980
Another massive change in franchising came via technology, whichhadn't even truly hit the industry 20 years ago. Now franchisebusiness is e-business-so this year we've included Websites in our Franchise 500® listing for the first time.
The technological revolution has hit franchising full force,making it easier for potential franchisees worldwide to exploreopportunities before they buy and then communicate more effectivelywith their franchisor and fellow franchisees after they hop onboard. Franchise shoppers are no longer limited to investigatingfranchises located in their immediate vicinity, but can researchthe perfect franchise even if it's based halfway around theworld.
Through the Franchise 500®, we've also had a front-rowseat for major shifts in franchising and the economy at large. In1981, we first started asking franchisors whether they were seekinglocations in foreign markets. Most said no. Today, everyone wants apiece of the world-some companies even have franchise officesoverseas.
Behind the Scenes
Internal as well as external changes have affected the Franchise500®. Perhaps the biggest change has been wrought bytechnology. Twenty years ago, compiling the necessary data involvedreams of paper, tedious typing and retyping, and painstakingtypesetting. Today, sophisticated database software enables theFranchise 500® staff, led by senior managing editor MariaAnton and research editor Liza Potter, to manage more informationin less time.
That's not to say that the task is quick, easy or paperless.The lengthy process of creating the Franchise 500® begins whenthe staff sends out mailings to more than 2,000 franchisors inearly August. As application forms and Uniform Franchise OfferingCirculars (UFOCs) begin rolling in, phone calls are made to verifyinformation and fill in any gaps. Towering stacks of UFOCs aresorted and analyzed. Throughout the process, CPA David R. Juedesplays a key role, analyzing financial data from all participatingfranchise companies to ascertain their financial stability.
Once all the information is in the database,Entrepreneur's entire editorial staff gets involved,with everyone from editorial assistants to managing editorspitching in to proofread and reproofread every last digit foraccuracy. Finally, after three months of intense labor, Anton andthe Franchise 500® staff make the final ranking calculations,using a closely guarded formula. (Rumor has it a well-knownfranchisor once attempted to break our top-secret code.) Once thescores are computed, the staff finds out who made the finalcut.
Making a Difference
Our Franchise 500® is not only the first and mostcomprehensive listing of franchises in the world; it's arguablythe most successful. So great is its influence, we're often(mistakenly) labeled a franchise magazine.
For whatever reason, other misconceptions have persisted."Everyone says you can't buy a McDonald's," saysAnton. "We asked them point blank , 'If our readers calledyou, would they be able to buy one?' and they said yes. If theyhad said no, we wouldn't include them. We're trying to findthe best opportunities for entrepreneurs. We do the Franchise500® for the readers."
And it's gratifying to know we're successful not just inrelation to competitors who've followed in our footsteps, butultimately in doing just that-serving entrepreneurs. In fact, wewere pleased a few years ago to hear that Scott Shane, a professorat MIT, conducted a study that revealed ranking in our Franchise500® was one of the top factors determining which newfranchises survive.
Life at Entrepreneur wouldn't be quite the samewithout the Franchise 500®. We'd like to think franchisingwouldn't be quite the same without it, either.
Snapshot
Surprisingly, photo franchises finished first in percentages ofunit growth. Visit the Photo Franchise Table to see the top fivephoto franchises.
Winner's Circle
10 best franchise opportunities over the past 20years.
1. McDonald's
2. Subway
3. Burger King
4. Domino's
5. Hardee's
6. 7-Eleven
7. KFC
8. Baskin-Robbins
9. Wendy's
10. Dunkin' Donuts
