Franchise Lawyer Blog

Franchising & The Pandemic

It’s not surprising that many retail and other consumer-facing businesses struggled during the pandemic, and some suffered more than others. Businesses that required close customer contact were going to have a harder time navigating through a dangerous virus. However, those who didn’t require close customer contact did more than merely survive, they thrived.  For franchised businesses specifically, performance is also varied. The Franchise Times Top 400 is an annual ranking of the largest U.S.-based franchise systems by systemwide sales. Some soared and some took a nosedive.

Needless to say, some of our clients are among the franchised businesses that did well and the ones that didn’t.  Our hotel clients suffered from restricted travel and curtailed business meetings. Franchised businesses in the fitness industry have also had a bad time of it – people are exercising at home. Reports about the sale of fitness equipment show a huge increase in business, affecting gyms and the like, possibly in the long-term. Fast food restaurants with drive-through windows or efficient delivery systems flourished, increasing revenue by twenty-five percent in some cases.

Through it all, there were only a few changes to the top 10 spots in Franchise Times listings. McDonald’s retained the No. 1 position with a lead of just over $1 billion, even with a 6.8 percent drop in systemwide sales just a year after passing $100 billion. 7-Eleven is right behind McDonald’s and going in the other direction. The company grew by 3.1 percent to $92 billion as it became a pandemic stable. It is evident that the public as a whole were doing more at-home projects. As a result, Ace Hardware had the most growth in the entire franchise space this year. New homes appear to have sold at a record pace. Among the best performers in franchising were the real estate brokerages with United Real Estate leading the way.

Hotels declined dramatically. Sales for the category sank 47.9 percent last year, a decline from $98 billion in 2019 to $50.9 billion. It was the hardest-hit category of franchising, but not by much. Trampoline parks did not fare well with shutdowns and, later, social distancing, and neither did swim schools. Personal service franchises such as fitness and health studios also suffered. Twenty-two percent of U.S. health clubs and studios have closed permanently since the COVID-19 pandemic began, and the U.S. fitness industry has lost $29.2 billion in revenue, according to findings by the National Health & Fitness Alliance. The industry’s revenue dropped 52 percent in 2020 compared to 2019, equating to a loss of $29.2 billion in revenue from March 2020 through June 2021, according to the NHFA.

Essentially, companies that required prolonged direct interaction with customers seemed to struggle, whereas companies that didn’t held reasonably steady or dramatically improved. It will be interesting to see how businesses, and franchises specifically, will fare in the future.

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