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Do franchisors create more value and perform better financially than their non-franchise competitors? A resounding yes, according to a new study by The William Rosenberg International Center of Franchising at the University of New Hampshire.
The study, "Does Franchising Create Value? An Analysis Of The Financial Performance Of U.S. Public Restaurant Firms," was selected the winner of the 2005 International Franchise Association Educational Foundation's Arthur Karp Research Award for "Best Applied Paper."
Test subjects for the study included 24 franchisors and 17 non-franchisors. Franchise firms included Applebees, Benihana, CEC Entertainment , CKE Restaurants, Jack In The Box, Outback Steakhouse, Panera Bread Co, Papa Johns, Ruby Tuesday, Sonic and Wendy's. Non-franchise firms included Bob Evans Farms, Cheesecake Factory, O Charleys, Landrys Restaurants, Lubys, Piccadilly Cafeterias, and Lone Star Steakhouse Saloon.
The researchers found that from 1993-2002, U.S. public restaurant franchisors created more value than their non-franchising competitors. "Franchising firms minimize agency problems, and have access to cheaper capital, motivated managerial expertise, and better local market knowledge," according to co-author Udo Schlentrich, director of the Rosenberg Center.
Franchisors do a better job of creating market value and economic value than non-franchisors. "The real value of franchising to a firm is the improvement in business performance due to its choice of growing through franchising instead of growing through its own means," added Schlentrich.
"Franchising has grown so fast since the 1950s that it is now pervasive in the U.S. economy. In a recent study commissioned by the International Franchise Association, PriceWaterhouseCoopers estimated that in 2001 there were more than 767,000 business establishments in the United States engaged in franchising, providing directly or indirectly more than 18 million jobs, over $506 billion in payroll, and over $1.5 trillion of output," explained Schlentrich. "Franchising now dominates certain sectors of the U.S. economy. For example, over 56 percent of quick service restaurants are franchises. Franchising is also one of the fastest growing U.S. exports, and it is now estimated that franchising (in terms of number of franchised units) will grow 12 to 14 percent per year in the future."