The American Franchise Market

The franchise market has always been on an upward trend in the United States, in the not too distant past, if you wanted to buy a franchise you simply had to find an ad in the newspaper, like in a 1949 edition of the New York Times that said "Do you have $10,000 to $20,000 to invest? Let us set you up to operate a successful cotton dress store for women, on a franchise basis, successful stores now operating in New York State, New Jersey and Long Island, you can locate the store in your own community, no experience necessary, excellent opportunity to develop your own business and have a comfortable life. Write for a consultation." This was one of the endless other advertisements about franchises that was advertised in one of the newspapers of the time.

The history of franchising goes back many years, and since then we have had several successful franchises throughout this time. White Castle, while not the first franchise in history, opened its first store in Wichita Kansas in 1921, and in 1922 its second rental store in the Kansas town of El Dorado. Howard Johnson, granted his first restaurant and hotel franchise to Reginald Sprague in 1935, while the first McDonald's was opened in 1955 by Ray Kroc and franchised almost everywhere throughout the 1960s and 1970s, this milestone was important because at that time the concept of franchising took off. As the decades passed more people began to consider the many benefits of owning a franchise as a way to have more control over their goals and income, lifestyle, wealth and net worth.

What is a franchise anyway? Franchising is one of the largest and most lucrative industries in the United States. In 2019 this industry grew at a faster rate than the rest of the economy. According to the U.S. Small Business Association (SBA), franchising is a way of doing business. A franchise brand and an aspiring franchisee sign an agreement in which licenses, trademarks, or systems are provided for use by the aspiring entrepreneur. The key to franchised businesses is that they have proven business models in place with established systems and processes that make them replicable and duplicable. There are thousands of different franchise concepts on the market today in over 70 different industry sectors (restaurants, personal care, automotive, hospitality, etc).

The cost of franchises will depend on the specific type of franchise you are looking to invest in. Clearly franchises have a disclosure document that is made available to interested parties, which contains the terms of the contract in a list of items, including all associated costs. Franchisors also offer guidance and ongoing support to their franchisees, while franchisees pay the franchisor a royalty fee in their contract for the use of their property, so franchisors are successful when their franchisees are successful as well. Franchising is a great alternative for entrepreneurs who want to become self-sufficient, but do not want to be completely alone in their business. Therefore, you will open a business on your own but not alone, investing in something that you are sure of its business process tried and tested in the Market, since with a franchise the investor does not need to reinvent a new idea, because this already presents itself formed and complete.

The North American Market as a pioneer in franchising offers many possibilities to invest in the country, and according to the study published by Statista Consulting the franchises generated a revenue of more than $787.5 billion in 2019 and employed about 8.3 million professionals. Facing such promising numbers Brazilians and other investors around the world can see as a very attractive opportunity this Market.

Franchises work because they deliver goods and services consistently, allowing for flexibility, however it is important to find a franchise that suits you. Make sure you have a financial contingency reserve built into your plan, because even with a franchise there may be unexpected expenses not previously budgeted for, and make sure you have a clear understanding of your financial situation. In this sense it is important to have a solid business and financial plan. However, if it is the case that you need financing for acquiring a franchise, contact your bank, as they often have their own financing models for this area. Many established franchise organizations also have well-developed financing plans. So whatever franchise you are going to invest in, explore all the different avenues of financing to find the right one.  

Acquiring a franchise may require certain care, use experts to help you in your research, financing and buying. Take your time, following through on this process with a discerning eye because this is a mutual investigation. Explore beyond your initial preconceptions, involve all decision makers in the investigation process. Have knowledge of the legislation or seek support from a consultant who is familiar with the laws of the United States, besides knowing well the franchise and its business model, it is essential to understand the particularities of the American market. It is also necessary to be aware of which visa the foreign investor is best suited for, because there are many types of visas that authorize foreigners to work in the United States. 

The average time it takes to buy a franchise is 6 weeks and it can take longer if necessary. However in a franchise buying process it is interesting to note that a good franchise should be less interested in selling you a franchise than in finding the right franchisees. This is a mutual investigation, while they are teaching you about their franchise, the team should also learn about you investor and determine your likelihood of success. The franchisor must offer you a franchise before you can buy one, big brands don't just sell to anyone, think about it. Franchising is not a guaranteed path to success, but it can be a solid formula based on tried and tested markets in the United States that can pave the way for future investor success.

The American magazine Entrepreneur in a study published in 2021 evaluated and ranked the 500 best franchises in Latin America, using a five-pillar system in the evaluation. They are:

  • Costs and fees: this includes the franchise fee, the total investment, and the royalty fees.
  • Size and growth: Includes how many open and operating units there are, growth rate and closures.
  • Support: Takes into consideration training time, marketing support, operational support, franchisor's infrastructure, availability of financing, and litigation.
  • Strength and brand: Includes social media, system size, years in business, and years franchised.
  • Financial strength and stability: Considers the franchisor's audited financial statements.

To be in the top 500 best franchises is a great achievement, even more is to make it to the top 10 best. Let's list the first ones in this ranking with their characteristics.

  1. Dunkin donutsFranchise started in 1955 and currently has a total of 12,957 units, with an estimated initial investment cost of between $395,500 to $1.6 million. Specializing in donuts (doughnuts), coffee and coffee products.
  2. Taco Bell: Franchise started in 1964 and currently has a total of 7,136 units, with an estimated initial investment cost of between $525,000 to $2.9 million. Specializing in tacos, quesadillas and the like, it is a typically Hispanic fast-food business that is very popular with Americans.
  3. McDonald's: Franchise started in 1955 and currently has a total of 38,108 units, with an initial investment cost estimated between $1.3 million to $2.2 million. Specialized in hamburgers and focused on the fast-food business, McDonald's is one of the best known franchises in the world.
  4. Sonic: Franchise started in 1959 and currently has a total of 3,600 units, with an estimated initial investment cost of between $1.2 million and $3.5 million. Specialized in hamburgers focused on the fast-food business.
  5. UPS (United Parcel Service): Franchise started in 1980 and currently has a total of 5,166 units, with an estimated initial investment cost of between $138,400 to $470,000. This franchise is one of the largest logistics companies in the world, delivering more than 14 million packages daily to more than 200 countries.
  6. Ace Hardware: Franchise started in 1976 and currently has a total of 5,312 units, with an estimated initial investment cost of between $286,000 to $2.1 million. Specializes in selling varieties of quality products to repair and maintain your home.
  7. Planet Fitness: Franchise started in 2003 currently having a total of 1,859 units, with an estimated initial investment cost between $1.1 million to $4.2 million. Fitness center franchise.
  8. Jersey Mike's Subs: Franchise started in 1987 and currently has a total of 1,592 units, with an estimated initial investment cost of between $237,400 to $766,970. Specialized in baguette snacks.
  9. Culver's: Franchise started in 1988 and currently has a total of 715 units, with an estimated initial investment cost between $1.97 million to $4.7 million. Specialized in fast food, selling snacks, ice cream, and derivatives.
  10. Pizza HutFranchise started in 1959 and currently has a total of 17,176 units, with an estimated initial investment cost of between $357,000 to $2.2 million. Specialized in pizzas.

As we have just seen in this article, franchising is a promising business for those who wish to have a ready and tested business model, with a very high chance of success. And have you already chosen your business model to start your operations in the American Market? Then contact us today to assist you in this process.

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