Franchises are small businesses too!
Nov 05, 2024
Behind every franchise unit, there’s a brand, hopefully proven and amazing. But the reality is that most franchises are small businesses owned by individuals and not large enterprises. Even well-known brands like McDonald’s.
Sadly, there is a misconception as to who owns the franchised units. People often think that they belong to big corporations or private equity firms that are increasing their investment in the model because of its profitability.
While it is true that the corporations themselves operate some of the stores, most of the thousands of franchises you see in the streets while you are driving around your neighborhood, in shopping malls, on the road, at the airport, and even in other countries, are operated by individual franchisees.
In this blog post, I want to share my thoughts on this misconception and clarify who benefits when you buy or consume from a franchise.
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Franchises in numbers
First, I think it’s important to enhance the critical role that franchises play in the economy of our country and our communities.
- There are over 3,500 franchise brands in the United States, covering more than 300 business categories.
- In 2003, there were more than 806,200 franchise units in the US alone, according to Statista.
- 10.5% of all businesses in the US are franchises, as explained by the US Census Bureau.
- Those businesses are owned by 700,000 people who are seeking financial and time freedom through the franchising business model.
- It is expected that the total franchise output will increase to 893.9 billion dollars in 2024, as stated in the 2024 Frachising Economic Report by the International Franchise Association (IFA).
- That same document estimated that franchises’ GDP would increase by 4.3% to reach 545.8 billion dollars in 2024.
Who owns the franchises?
Nine out of 10 franchises are owned by individuals and families.
Some of them are single-unit franchisees. These individuals invested their savings, settlement, partner money, or loans in a proven brand to achieve the dream of business ownership and to support their families away from the corporate world. They strive every day to move their businesses forward, opening and closing the stores, working alongside their teams, and managing the operations the best way they can.
- 53% of all franchises are owned by Multi-Unit Franchisees, according to Frankart Global.
These investors also started with just one unit but eventually grew and now operate multiple stores within a district. Some of these franchisees even became Multi-Brands (MUMBOs), doing business with different franchise brands and even various industries.
Not only that. Franchises are an essential source of employment:
- Around 8.66 million people were employed by a franchise in 2023, as mentioned by Statista.
- Franchising is expected to add approximately 221,000 jobs in 2024, according to the IFA's 2024 Frachising Economic Report.
Many of these jobs are held by young people entering the workforce; however, there are also graduates with student debt and parents who see this model as a formal job with growth opportunities.
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Franchisees and their employees are the backbone of each franchise unit. They are dedicated to ensuring customer satisfaction, providing exceptional service, and managing the business daily to achieve not only sales but also profitability.
Unfortunately, they are also the ones who get most affected when people do things against franchises, thinking they are hurting big corporations. Instead, they are harming small businesses, those mom-and-pop family businesses, and the employees who work in those units.
A manager anecdote
As I have shared in other blog posts, I started my career in franchising as a pizza delivery girl for Domino's Pizza and worked my way up to leadership roles. This is a photo of me with my baby daughter from those days.
When I was a Unit Manager, the founder and CEO, Tom Monaghan, made some comments that were considered unacceptable by some people. This affected the brand and also hurt their franchise network and employees, including my team and me.
At the time, all our uniforms were washed at a local laundromat every week because we didn't have a washing machine in our store. Shortly after this unfortunate event happened, I recall going back to the laundromat to pick up the cleaned uniforms, but to my surprise, they weren’t in the washing machine... Someone had taken them out and thrown them in the trash.
I was really upset. I had a bunch of dirty and soaked uniforms that we needed to be able to do our jobs. Company policy required all employees to wear uniforms while working. If we didn't, we would not work and would lose our paid workday, which we could not afford.
It was frustrating to think that someone had made that action thinking it would damage the CEO or the corporation when in reality, it only hurt me and my teammates.
The role of the franchisor
When people see a franchise, they automatically think of big corporations making tons and tons of money. But that's not the case. Even if it is a legacy brand like McDonald's, that recently made headlines when a presidential candidate visited one of their franchise units, it is important to remember that each franchise is owned by an individual who uses this business to support themselves and their families.
In a memo written by McDonald's, they said, “We are not red or blue - we are golden”, meaning they are there for everyone. And that is true. 93% of their restaurants were franchises in 2019. Those who own and work in these businesses are a broad, diverse set of individuals who work hard to create a better life for themselves and those they love.
Yes, franchisees have the franchisor behind them, but their support is limited due to joint liability laws and the nature of the model. That means that the brand owner only gives them very specific support around the product, the service, the image, and the national marketing.
Keep learning: How Franchisors Can Help Franchisees
- It is a fact that investing in a proven brand is not enough to be successful. If a franchise unit is profitable, it is because the franchisee manages the business properly and has the necessary skills to protect the brand, the business, and their people.
I wanted to share this information so that the next time you see, visit, or make a purchase at a franchise unit in your neighborhood, across the country, or around the world, you'll remember who is really behind those franchise brands.
Also, remember that the American Franchise Academy aims to protect the American dream of business ownership through franchising. We work every day to help and support franchisees to be successful in the long run. If you want to explore more about what we do, how we do it, and the outcomes you can expect by working with us, click below:
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Sources: Statista, 2024 Franchising Economic Report, Frankart Global, Fortunly
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