As most of you know, FRANdata tracks all franchise brands in the U.S., allowing us to see trends early in their development. One of the questions we repeatedly get is, “What’s hot?” One way of answering that question is to look at where new brands are appearing.
Leading up to the pandemic and during its first couple of years, we saw a lot of businesses close permanently. However, capitalism seeks opportunities, and we’re seeing it unfold through new franchise brand patterns. For most of the past 15 years, we have identified an average of about 250 new franchise brands per year. (To be clear, these are companies signaling an intent to franchise. Many never actually become a franchisor).
However, the past year saw an all-time four-quarter high of 373 new concepts. Knowing where they are coming from and some of their characteristics should help inform your investment strategy for 2023 and beyond. Examining these trends on a quarter-by-quarter basis for the past year reveals some interesting patterns.
Q4 2021. We identified 78 new franchise brands across 19 industries. As in all quarters since, QSR and Health & Fitness led all new brands. QSR concepts led in this quarter, a clear indication of consumer preferences focused on personal discretionary spending. New brands bring lots of pandemic-influenced new twists to these categories. For those with an investment strategy akin to “Hit ’em where they ain’t” (baseball player Wee Willie Keeler, circa 1900), there are many options—more than one-third of new brands in this quarter were in Publications, Travel, and Maintenance Services.
Sixty-five of these brands had no franchised units at the end of 2020. Of the 78 new brand concepts we identified, 25 reported average unit revenue (AUR), with the average AUR of these 25 brands approximately $1,072,336. Eight brands were affiliated with existing franchise brands through their parent company. Over the past year, we 18 international brands began franchising in the U.S. In this quarter, 11 international brands (mostly food) entered the U.S., originating from Canada, Ireland, South Korea, China, Taiwan, and Mexico.
Q1 2022. We identified 86 new franchise brands across 23 industries. Food concepts continued to make up a large percentage of new franchise concepts (about 42%), followed by Health & Fitness, with a growing number of brands in Maintenance Services. Other key industries were Real Estate, Child-Related Services, Education, and Automotive.
Sixteen of these brands had no franchised units at the end of Q1. Seven international brands entered the U.S. in this quarter, from the United Kingdom, India, Taiwan, South Korea, and Germany. Most were food-related, but they also included Tax Services, Education, and Auto Repair.
Of the 86 new brand concepts identified, 41 reported AURs, with an average AUR of $1,299,297. Compared with the previous quarter, brands reporting more than $1 million annual sales doubled from 11 to 22. The average initial investment for the 86 concepts identified this quarter was $519,608. Sixteen brands were affiliated with existing franchise brands through their parent company.
Q2 2022. We identified 91 new franchise brands across 22 industries. Food concepts were consistent at 41% (from 23 in Q1 to 28 in Q2), followed by Health & Fitness. Other key industries were Maintenance Services, Child-Related Services, Education, and Sports & Recreation.
Forty-eight reported AURs, with the average for these 48 brands rising to $1,439,847. Brands reporting more than $1 million in annual sales declined from 22 in Q1 2022 to 19 in Q2. Seventy-one had no franchised units at the end of Q2. Two international concepts entered the U.S. franchise market in Q2, from Canada and South Korea. Twelve brands were affiliated with existing franchise brands through their parent company.
Q3 2022. We identified a record quarterly total of 118 new franchise brands across 22 industries. The top two categories were the same (Food and Health & Fitness). However, food concepts made up a slightly smaller percentage of new franchise concepts (about 38%) as other industries showed up more strongly in Q3. These included Maintenance Services, Building & Construction, and Beauty-Related.
Of the 118 new brand concepts identified, 48 reported AURs, with an average AUR for the 48 brands in this quarter of $984,511. The average initial investment for the 118 concepts identified this quarter was $475,962. Eighteen were affiliated with existing franchise brands through their parent company.
Options abound
There is much to digest in these brand trends. Momentum is clearly showing by quarterly expansion. While food in general looks increasingly crowded, more brands are moving away from traditional concepts toward international cuisine, healthy food, or convenience services. Fitness may be close to a consolidation phase, and we’re now seeing after a large expansion in Residential Services brands. While cost pressures have led to investment and operations reductions for many mature brands, a surprising number of new brands are coming with larger formats and associated larger investment requirements. You have plenty of options to consider in 2023!
Darrell Johnson is CEO of FRANdata, an independent research company supplying information and analysis for the franchising sector since 1989. He can be reached at 703-740-4700 or djohnson@frandata.com.