Are the Industry "Top Franchise" Lists reliable?
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Top Franchises? By Robert Edwards
Everyone wants to find these amazing"top franchises". And everyone has access to the internet to do research right? Yet why do we keep reading about so many people losing their money after investing in a franchise?
Well maybe because of things like this. Let's do a Google search for "top franchises"- the first organic match is Entrepreneur magazine. This is an extremely popular website and magazine and since 1979 Entrepreneur has published it's list of the "top 500" franchises. If you have been looking for a franchise you have undoubtedly come across the Entrepreneur rankings as they have many sub categories that franchisors love to announce if they made the cut.
So it's 2017 so let's take a screen grab of the top 4 Franchises. At number one we have 7-Eleven, #2 is McDonalds, #3 is Dunkin Donuts and #4 is the UPS store.
So we have a very established website and organization telling us these are the absolute best franchises in the world. Now combine that with these franchises being very visible and well known - we have the catalyst that pushes people forward to make a less than optimal franchise buying decision.
Now why do I say that? Well before we discuss that let's take a look at how Entrepreneur selects these franchises. Is it by franchisee satisfaction rates? By how much you will earn if you own a store? By lowest store closures? No, none of these things. Let's look at how this list is made.
Entrepreneur calls these it's "five pillars" that go into it's ranking. They consider 1. Costs and fees, 2. Size and growth 3. Support 4.Brand Strength and financial strength of the brand. Now from a corporate perspective these might actually be important. But we aren't investing in stocks we are buying a franchise.
So let's break these down, costs and fees. From Entrepreneurs own site they include the sub criteria of costs and fees as franchise fee, total investment and Royalty fees. And who was #1 on the list? 7-Eleven. Is that the same 7-Eleven that takes over 50 percent of your gross revenue? The 7-Eleven that increases their royalties the more money you make? And how about #3 "Support"? That includes training times, marketing support, operational support, franchisor infrastructure, financing availability and litigation. 7-Eleven at one point was not even eligible for SBA loans! In fact FRANdata president Edith Wiseman stated the U.S. Small Business Administration has “identified issues within the 7-Eleven franchise agreement that they would have to overcome to obtain SBA financing,” including excessive fees, the requirement that store receipts are deposited into the franchisor’s account and the fact that the franchisor owns the assets of the business and provides its payroll services" And litigation? Google 7-Eleven lawsuits and enjoy the read.
And that was your number one on the Franchise 500. Next up we have McDonald's at the #2 spot out of every franchise in the world. Is it only me that knows McDonald's has been financially struggling? In 30 seconds of Googling I was able to pull up dozens of news and business news articles that covered everything from people eating at McDonald's less frequently to how the Golden Arches sales have been floundering for years. Not only that the QSR50 indicates McDonald's closed over 100 stores last year alone! But wasn't "closures" one of the five pillar criteria from Entrepreneur? Operational Support and infrastructure is another criteria and McDonald's franchisees satisfaction rates were the lowest in 11 years not long ago. And it's no secret many franchisees do not have faith in corporate to turn the ship around. This Instinet poll indicated that nothing about the company's future plans excites them. I could go on for days here.
#3 Dunkin Donuts. Actually not too bad.
And #4 is the UPS Store. Pages 6 to 14 in their 2017 FDD is nothing but lists of lawsuits! It is no secret UPS has a lot of unhappy franchisees. Google it yourself to read more. And this Bluemaumau forum has comments from individuals stating they are actual owners. Very enlightening. http://www.bluemaumau.org/the_ups_store_tales_gore
Now in defense of Entrepreneur magazine in the fine print they tell people their list is not intended to endorse, advertise or recommend and franchises. And to get a lawyer. And do your homework. And speak to franchisees. But I don't think anyone reads that print because we continually get clients defending the value of a franchise because "it was listed on the Top 500" Even if the franchise is at number 499 - it made the list so it must be good.
The reality, is that there are no top franchises that universally apply to everyone. If you base your buying decision on the whims of some list, don't complain about franchising when you don't do as well as you had hoped.
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