Franchising the American Dream: A Tidal Wave of Growth, Particularly Overseas

For a number of large franchise brands, cash from operations is up versus the five-year average, creating quite a hot market for investment and growth. Franchises will continue to invest in innovation, technology, and growth in order to keep the brand accessible and relevant to increasingly capricious consumers and to capitalize on space left by closed restaurants.

However, there are limitations to growth. While revenues in the US are growing, actual restaurant unit growth is flat. Historically, low growth indicates consolidation, which we anticipate occurring. US franchise brands are also looking at much more rapid growth overseas. As a result, we anticipate consolidation within the US and swift expansion internationally.

Growth overseas is great for the franchisor, but might be challenging for the franchisee because, when it comes to international expansion, franchisors prefer to go it alone or with in-market partners. Franchisees may be awarded rare joint international development deals. Alternatively, they may have success buying some of the limited refranchising that is likely to occur.

Also for consideration, 2022 may be another good year for franchisees to consider their exit strategy. There are plenty of eager buyers with strong capital backing in the form of private equity maintaining good valuations. But the window on these valuations may be limited, as inflation is on the rise, and, with consumers increasingly dining on premise, competition from independently run full-service restaurants will also rise.