Franchises Getting Upper Hand Over Independents
It's a trend that economic hard times are accelerating, as franchisees snap up hard-to-get financing.
Franchises are making gains on independents, especially restaurants. By 2013, franchise eateries -- fast food outlets, family sit-down places, etc. -- will outnumber all others.
From 2000 to 2008, the number of franchise restaurants grew by 20%, while the number of nonfranchise restaurants fell by nearly 4%, according to data compiled by NPD Group, a retail market research firm. Deflated consumer spending and crimped credit could even accelerate this trend, nudging more independent restaurants over a cliff.
“Franchises have been far from insulated from the recession, but overall they have performed better,”says Jonathan Maze, an editor at Franchise Times, a trade publication.

Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
On the whole, franchises will outgrow their nonfranchise rivals this year. They’re typically better positioned than mom-and-pop shops to survive downturns, benefiting from a strong brand presence, corporatewide marketing campaigns and access to advice and mentoring from the franchisor. Plus they can often offer customers -- and get from suppliers -- steeper price discounts.
In fact, 60 new franchise brands were added in the last quarter of 2009, while many other small businesses suffered. “Given the big drop in the economy in ’09, these numbers are pretty good,” says Darrell Johnson, president and chief executive officer of FRANdata, an independent research firm that also administers the Small Business Administration’s Franchise Registry.
Moreover, lenders may be less tightfisted with franchise owners than with nonfranchise owners. Odds are that this year one in every five dollars of SBA guaranteed loan money will go to a franchise business, Johnson says.
Lenders have “a slight bias toward franchises,” he says. “Generally, bankers tend to perceive franchises as less of a risk. There’s a greater willingness to lend to them,” Johnson says, adding that loans to franchisers also tend to be larger compared with loans made to independents.
The overall economic output of franchise businesses is expected to rise 2.8% this year, versus a decline of nearly 1 percent in 2009. The biggest gains will come from personal services, quick service restaurants and business services, according to a report by PricewaterhouseCoopers for the International Franchise Association (IFA).
The franchise sector has been expanding at a faster pace than the overall business sector in recent years. From 2001 to 2005, economic output of franchised businesses grew by over 41%, from $625 billion to $881 billion, while the economic output of all businesses grew by 26%, from $16 trillion to $20.1 trillion, the IFA report shows.
“Networked businesses tend to recover at a faster pace than other businesses and tend to sustain businesses more effectively than nonfranchised businesses,” says John Reynolds, president of the IFA’s Educational Foundation. “Franchises have support systems -- ways of doing business more efficiently in a way that independents do not have.”
For weekly updates on topics to improve your business decisionmaking, click here.
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.
-
Retire in the Canary Islands for Beaches and Natural Beauty
Retirees enjoy Spain's Canary Islands, where life can be as hectic or chilled as you like. The one constant will be almost year-round mild weather.
-
The '120 Minus You Rule' of Retirement
The '120 Minus You Rule' updates an older retirement rule, with a twist. Here's how this approach to retirement portfolio construction can work for you.
-
The Rise of AI: A Kiplinger Special Report
The Kiplinger Letter Our special report looks at the opportunities and challenges of generative AI and how its rapid move into the mainstream is impacting every aspect of our lives.
-
Big Changes Are Ahead for Higher Ed
The Kiplinger Letter A major reform of higher ed is underway. Colleges are bracing for abrupt change, financial headwinds and uncertainty.
-
AI-Powered Smart Glasses Set to Make a Bigger Splash
The Kiplinger Letter Meta leads the way with its sleek, fashionable smart glasses, but Apple reportedly plans to join the fray by late 2026. Improved AI will lure more customers.
-
Breaking China's Stranglehold on Rare Earth Elements
The Letter China is using its near-monopoly on critical minerals to win trade concessions. Can the U.S. find alternate supplies?
-
Things that Surprise Business Owners When It’s Time to Sell
The Kiplinger Letter When it’s time to retire and enjoy the fruits of growing their business, owners are often surprised by how tough it is to give up their baby!
-
What New Tariffs Mean for Car Shoppers
The Kiplinger Letter Car deals are growing scarcer. Meanwhile, tax credits for EVs are on the way out, but tax breaks for car loans are coming.
-
AI’s Rapid Rise Sparks New Cyber Threats
The Kiplinger Letter Cybersecurity professionals are racing to ward off AI threats while also using AI tools to shore up defenses.
-
Blue Collar Workers Add AI to Their Toolboxes
The Kiplinger Letter AI can’t fix a leak or install lighting, but more and more tradespeople are adopting artificial intelligence for back-office work and other tasks.