3 Things You Should Know About Small Business: September 17
NEW YORK ( TheStreet) -- What's happening in small business today?
1. Restaurants continue to shift towards franchise model. More restaurant chains are seeking to franchise stores as the credit markets open, signing new franchise agreements for brand new locations or acquiring preexisting locations to expand their unit counts, according to Technomic.
"Restaurant companies are shifting towards a franchise growth model by selling company-owned stores to raise money and reduce capital expenditures, focusing more on the brand and less on operations," said Technomic EVP Darren Tristano. "The fast-casual and quick-service segments in particular are seeing higher levels of appeal based on lower costs of entry and strong unit economic models."
The top 400 restaurant franchise companies generated an estimated $34 billion in sales in 2011 and accounted for almost 10% of the total commercial restaurant industry sales of $370 billion, according to Technomic's 2012 Top 400 Restaurant Franchise Company Report.Eighty-seven percent of McDonald's sales came from franchised stores for a total of $29.7 billion in 2011, whereas Subway's system is 100% franchised, meaning that all $11.4 billion was generated by franchisees, the report says. The next largest chain in terms of total U.S. franchise sales was Burger King at $7.4 billion. Many chains are taking advantage of national brand strength and resources while reducing their own start-up and operating costs. Plus, with recent closures, more prime locations are available for new restaurants, Technomic says. 2. The SBA and the International Franchise Association are at odds over franchise survival rates. The Small Business Administration said in its monthly newsletter that survival among independent businesses compared to franchises "appears to be similar" as cited by Blue MauMau, a website for news and information related to franchise ownership. Founder Don Sniegowski writes this is not the first time that the SBA has made this statement, yet it goes against popular sentiment and has largely "failed to catch the attention of sellers and buyers." According to the SBA, half of all new establishments survive five years or more, while one-third survive 10 years or more. But the International Franchise Association dismisses the unflattering franchise success rates, claiming that many of the franchises are "misclassified" by the SBA. "Not all franchise businesses are coded as such and the SBA data does not compare business segments in the franchise sectors to the same segments in the non-franchise sectors," an IFA spokeswoman told Blue MauMau. Sniegowski says there are two different comparisons going on here -- the SBA is referring to U.S. Census research while the IFA is referring to the SBA's report on the repayment of SBA-backed loans by franchises.
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