Annual Franchise 500(TM) List Provides Insight into Consumer Trends

February 18, 2011

Entrepreneur has released its 32nd annual Franchise 500(TM) list. Based on objective and quantifiable factors such as financial strength and stability, the magazine ranked the top 500 franchises in the nation. Although the economy will inch slowly and sporadically forward in 2011, Entrepreneur predicts that franchisor support will allow some chains to thrive.

Free Upgrades, Extra Amenities Popular among Consumers

Hampton Hotels won top billing, noted among mid-priced hotels for quality accommodations for frugal travelers. Its offerings include free upgrades and high-speed Internet -- amenities meant to make travelers feel they are receiving a luxury hotel experience.

Rounding out the top five ranked franchises were ampm, McDonald's, 7-Eleven, Inc. and Supercuts (an indication that consumers favor value over anything else according to PR Newswire).

Also, businesses previously considered expensive and "luxury" (such as upscale restaurants, hotels and spas) have fared well by boosting good deals. Entrepreneur says that the recession mentality has driven these types of businesses to offer products and services to consumers (with less expendable income) at a price point they can now afford.

Franchise Forecast

Entrepeneur contends that while small business owners will most likely continue to struggle with lower profitability and less access to credit in the wake of the tough economy, many franchise sectors -- such as fast food chains that offer value meals or dollar menus -- will strengthen because they offer good deals at low prices.

However, Martin Regalia, chief economist to the U.S. Chamber of Commerce, says that franchises tied to the real estate market or providing interior finishing services will most likely continue to struggle until the effects of the foreclosure crisis wane.

Benefits of Franchising

In a tight credit market, many small businesses owners today are having difficulty securing business loans. However, Entrepeneur indicates that many franchisees will receive help from their franchisors. Some franchisors will provide documentation to franchisees of the success of existing franchisees. Some will even waive royalties and other fees and assist with new marketing programs.

Michigan resident Susan Smith says corporate assistance really helped her franchise business. Smith's husband ran a Fish Window Cleaning franchise. In 2008, he suffered a fatal heart attack. Smith was forced to close the store. However, after her husband's funeral, a man from Fish corporate stayed to guide Smith through the first week after reopening; the district manager and headquarters also helped. Smith's business has since been named Fish Franchisee of the Year for her size territory.

Prospective Franchisees

More than 10 percent of franchises on Entrepreneur's list appeared for the first time. The variety of offering makes franchising an attractive option in this tight economy. Some franchise startup costs make it an even more appealing option. Vanguard Cleaning Systems, for example, ranked number seven on the list and had reported startup costs starting at just $8,200.

FRANdata President Darrell Johnson forecasts that consumer spending and hiring will not pick up much in 2011. However, he indicates that despite the dismal outlook, some franchises will remain profitable. Households with less expendable income will flock to franchises like fast-food chains that offer a perceived value.

Before proceeding, anyone considering entering into a franchise agreement should schedule a consultation with an experienced franchise law attorney to discuss business startup, including tax and liability, considerations. Additionally, a lawyer can review the terms of the proposed agreement, assist with business startup and possibly represent the franchise in ongoing business concerns.

Article provided by Einbinder & Dunn, LLP
Visit us at www.ed-lawfirm.com