By Haddon Libby
What business type is expected to outperform the overall economy this year? Franchises.
Franchises can be in any business – food, accounting, cleaning, etc. On the whole, business owners of franchises can expect business to increase 5% this year, a full 2% more than the U.S. economy as a whole.
Despite this rosy outlook, there is one risk factor that could undermine growth – the joint-employer rule being proposed by the National Labor Relations Board. This ruling, if it survives legal challenges, means that the franchisor will be held responsible for all of the actions of their franchisors. Let’s use an example to show how that could affect the franchisor as well as all of their franchisees.
A franchisee that I will call ACME does all sorts of labor law violations against their employees and then goes bankrupt. The harmed employees could sue the franchisor, ACME USA, for the actions of a business owner that the franchisor had little to no control over. Assuming that the franchisor has to pay claims to the violated employees, ACME USA would have to increase its prices to its other franchisees to make up for the actions of the violating and now defunct franchise operator. Not only would this mean higher prices to all of us but it could cause the failure of a franchisor and subsequent failure of all of their other franchisees, do to no fault of their own.
Assuming that legal challenges prevail and cause a more thoughtful and fair way to insure that franchisors adhere with the law and best practices, what are the best franchise types for someone looking to start their own franchise in 2015?
Personal services – This category includes businesses like hair salons, child care, senior care and paint-and-sip studios like Color Me Mine and Painting with a Twist.
Lodging – With an improving economy, travel is increasing. This means that franchises like Red Lion and Holiday Inns are growing again.
Business Services – This sector includes businesses like The UPS Store, FastSigns and tax service companies like H&R Block and Liberty.
Quick-service Restaurants – More than 40% of all hiring by franchises occurs in this sector. With consumers looking for healthier food alternatives, franchises like Panera Bread and Corner Bakery Cafe are expanding quickly.
Other – A mix of businesses like 7-Eleven, ServiceMaster and Pearle Vision.
At present, the best franchise to own based on average sales is Chick-fil-A. Their average franchise earns $3.2 million in revenues annually. Founded in 1946, Chick-fil-A has nearly 1,700 stores.
Despite negative press in the media, McDonald’s remains one of the most valuable franchises in America. With average sales of $2.6 million at over 12,605 stores, expect a rebound as new management helps their franchisees with a fresher, more stream-lined menu.
Jason’s Deli, which has their closest location in Riverside, is the third best franchise to own with average sales of $2.56 million per location. Founded in 1976 in Texas, Jason’s has 245 stores.
While the Coachella Valley is looking forward to the expansion of Dunkin’ Donuts, Krispy Kreme is the fourth best franchise to own with average sales of $2.4 million over their 239 stores.
Panera Bread which was founded in St. Louis in 1981 has quickly grown to become the fifth most valuable franchise with average sales of $2.43 million across their 1,652 stores.
While owning a franchise may seem like a great business opportunity, many operators complain that the franchisors are increasingly stripping away profits and equity. Many employees have made it clear that many of their jobs do not pay a living wage. Nevertheless, franchises are a business type that Americans are frequenting on an increasing basis.
