Private equity firms and other large investors are taking over more and more franchised restaurants, contributing to a shift toward larger operators that may threaten the future of smaller and even medium-sized franchisees.
Franchise Times reported in 2015 that the country’s largest 200 restaurant franchisees operated over 23,000 restaurants, or an average of 116 units. Ten years ago, franchisees in the top 200 owned 78 units on average. In other words, the big restaurant operators have gotten bigger by nearly 50 percent over the period.
As larger operators grow, some smaller franchisees leave. Rick Ormsby, co-founder of investment bank NDA Inc., which specializes in the sale of YUM! Brands units (Taco Bell, KFC, and Pizza Hut) reports that 25-30 percent of YUM! operators with 10-15 units or fewer have left the system over the past four or five years.
Even medium-sized franchisees are losing ground, according to Franchise Times: “Many of the franchisees on the Restaurant 200 are getting bigger not by purchasing these mom-and-pops, but because they’re buying out mid-scale operators with 10 to 20 locations. These franchisees are retiring or simply getting out of the business.”
According to Nation’s Restaurant News,