New Brands Rising: Conditions converge to grow the number of brands 

In 2022, the industry saw a huge jump in the number of brands entering franchising to 414 brands with 2023 looking to finish at a similarly high number. Before Covid, the industry averaged some 322 new brands a year. Since then, there has been an average of 383 new brands. That is a growth of 19% in the number of new brands per year.

In December 2023, the U.S. Census Bureau announced a huge surge in new business applications. Much to the surprise of many economists, applications are at a rate stronger than even before the pandemic. This surge comes as peoples’ attitudes toward work have changed with many opting to be their own boss. Supporting this wave is the influx of cash from Covid relief and assistance programs. These financial resources provided aspiring entrepreneurs with the means to transform their ideas into viable businesses. We also saw entrepreneurs take advantage of changing consumer preferences and behaviors and building businesses that met that need in a specific “hot” industry. 

The influx of new brands aligns with the fastest-growing and most in-demand sectors within the franchising landscape (see graph). Personal services, residential services, and QSRs have emerged as the frontrunners, capturing the attention of entrepreneurs and consumers alike.

Expanding rosters

Interestingly, on average about 20% of new brands have backing from the outset, meaning these brands are either part of an existing system or receive investment dollars from private equity firms or investment angels. This financial support reduces the risk for those starting a new business and enhances the potential for success in a competitive market. 

An example is Sparkle Squad, a brand offering residential and commercial window cleaning. Levine Leichtman Capital Partners manages their parent company and investment funds. Additionally, Empower Brands, known for their family of brands, including Koala Insulation, Wallaby Windows, Bumble Roofing, and others, partnered with Canopy. This strategic alliance allowed Empower Brands to integrate Canopy’s premium services and innovative business model while providing Canopy with the tools, resources, and support needed to build a thriving franchise.

International increase

More than 30 brands with countries of origin outside the United States launched in 2022-2023. The temporary pause caused by the Covid-19 lockdown and its aftereffects seems to be a distant memory now as foreign brands forge ahead with their plans to enter the U.S. market. 

Pepper Lunch originated in Japan and has a global presence with nearly 500 locations in 15 countries. Their strategic expansion vision is to venture into various U.S. markets to reach 100 North American locations by the end of 2025.

Dynamic growth 

Over the two decades preceding Covid-19, a concerning pattern emerged in the U.S. economy characterized by a notable decrease in business dynamism (according to a Brookings Report: Surging Business Formation in the Pandemic: Causes and Consequences?). This decline manifested across various indicators of entrepreneurial engagement, raising alarms due to the significant role young firms play in driving employment. However, the landscape has shifted in the aftermath of Covid-19. Presently, we have observed an increasing number of enterprises are actively pursuing dynamic avenues for growth with the franchise model emerging as an appealing option. Offering a blend of established success and scalability, the franchise model is drawing growing interest from nonfranchised brands seeking to expand their operations and market presence. 

The surge in new business applications and the growth of franchising reflect a notable shift in the economic landscape of the United States. Entrepreneurship is thriving with increased support from Covid relief programs and changing attitudes towards work and consumer behavior. The rise of franchising, backed by private equity and the entry of international brands into the U.S. market, underscores the adaptability of the business ecosystem.

As COO of FRANdata, Paul Wilbur is instrumental in building the research and consulting framework at FRANdata. He plays an integral role in the strategic development of FRANdata’s suite of franchise solutions. As a close to 20-year veteran at the company, he is the franchise business model expert and plays a key role in fostering the strategic advisory relationships with some of FRANdata’s biggest clients.