The Top 10 Franchises of 2011
Welcome a new No. 1 and the return of an American institution.
1. Hampton Hotels
Hampton sits at No. 1 not because it bundles for free services that more upscale hotels charge through the nose for, or because it has a customer satisfaction guarantee (your money back if you're displeased for any reason, no questions asked) that's borderline insane, or because it just put waffle irons in all of its hotels. None of these hurt, but Hampton is tops because it listens to consumers and takes their ideas to heart.
"I've sat with our senior leadership team and with our top guests to learn how their values have changed," says Phil Cordell, global head of Hilton's Hampton Brand. "The last three years have been rattling. Our guests are more focused on family and community. We're having a conversation about consumer values and how that impacts travel behavior and hotel decisions."
Complimentary Wi-Fi, breakfasts and phone calls all draw in value-conscious consumers. But other hotels can copy most of that. It's Hampton's customer service and culture, Cordell says, that jumped it ahead of other value hotel brands. "Our friendly, positive culture is almost impossible to copy, especially in a franchise environment."
The rest of the world is going the Hampton way, too. In 2010, Hampton added nearly 100 units for a total that tops 1,810, including locations in Germany, Canada, the United Kingdom and Latin America. This year, Hampton will launch in the United Kingdom, Mexico, India, Romania and Trinidad, though the waffles might not make the trip.
Ampm has been pushing hot dogs and Snickers bars to U.S. travelers for more than 30 years, but the brand may not ring a bell. That's because for most of that time, ampm was only found in five western states, as the convenience brand of the Arco gas company. But in 2006, BP, which absorbed Arco in 2000, decided that the popular convenience store chain was ready to go national. Since then, BP has steadily sold off its BP Connect and other gas-station convenience stores, converting them to ampm franchises and creating one of the fastest-growing brands in the country.
So far, ampm has moved east to Illinois, Ohio, Pennsylvania and Florida, with more than 1,100 franchises in its U.S. system and 2,000 others in Japan, Brazil and Mexico. Though it's keeping its growth steady and controlled, it has a massive potential--any market where BP gas is sold is a market for ampm. But the store's strength also comes from its products--the franchise has emerged as a true competitor to other convenience retailers, drawing in traffic with signature items like its 24-flavor fountain drink oasis, an ever-expanding menu of hot fast food and a 16-item condiment bar with everything from spicy mustard to jalapeños and chili, all aimed at fulfilling the company slogan, "Too much good stuff."
You probably haven't noticed many Golden Arches going up around the country--the fast-food empire has more or less hit its North American saturation point, adding about 100 locations to its existing stock of 13,894 in 2010. But McDonald's has managed to stay dynamic even without fresh brick and mortar (though it is putting up new stores in India and China, which is expected to open 600 new Mickey Ds by 2013). The focus at home is on improving quality and customer experience, an effort that has boosted average per unit sales to $2.4 million in the United States, a 4.2 percent increase over 2009.
"Becoming better, not just bigger, has been on the top of our mind over the last several years," says Danya Proud, spokeswoman for McDonald's U.S.A. "We're all about long-term investment and growth."
Those investments include fluffing the menu with upscale Angus burgers, more snack-oriented items as well as the McCafe line of espresso drinks, including frappes and fruit smoothies, which were runaway hits in the last half of 2010. It also means adding perks like free Wi-Fi, which is available in 12,500 locations, updating interiors more often and rolling out items to appeal to new demographics.
This year, franchises will begin offering oatmeal all day, and the company likely will repackage its milkshakes.
"We have to get comfortable with what the customer is looking for," Proud says. "We need to give customers another reason to come in; we want them to get everything they're looking for under one roof.
It's not that 7-Eleven isn't picky about its locations--it pays plenty of attention to demographics, site selection and other basic metrics of franchising. It's more that it's adaptable, and during the past couple of years it has become like the yoga-master of franchising. Want to convert a mom-and-pop convenience store to a 7-Eleven? Need to squeeze a small convenience store onto a college campus or airport? Own a gas station but don't have the cash or experience to run the convenience store? 7-Eleven can help. It's no wonder it has 39,300 locations worldwide and more than 8,300 in North America, including 285 that opened last year. Three hundred more are slated for 2011.
"Our expertise is convenience," says Jeff Schenck, senior vice president for franchising and development. "And our industry is very fragmented. Big oil is getting out of the convenience store business. Through our different models and our brand strength and scale, we've had a great opportunity to grow."
But picking up gas stations and neighborhood bodegas is only part of the company's success. A growing line of private label products, from beer and wine to batteries and beef jerky, priced 10 percent to 20 percent below name brands', offers customers value and gives franchisees higher profit margins. A larger variety of hot foods is also driving increased sales as recession-weary consumers pick up meals from the value-priced retailer.
"People are looking for quality at the right price," Schenck says. "It's important for us to keep our eyes focused on those customers."
Before the Great Recession hit, Supercuts' growth pattern mirrored pretty much everyone else's--wherever a shopping plaza was going up in a new market, it was there. But as construction projects dried up around the country, Supercuts began to rethink that strategy.
"We decided we were going to focus on staying strong and growing where we have a good presence," says Mark Kartarik, president of Regis Corp.'s franchise division. The company will add 100 units nationally this year, and expectations are for double that in 2012. In Boston, for example, it opened five units in 2009 and 10 new units in 2010. In the coming year, it'd like to do 30 more and follow a similar strategy in Los Angeles and New Jersey.
Kartarik is hoping to move the franchise into the future. "All we heard in the beginning about the Internet being free was a lie," he says. "Creating a digital strategy is expensive. In the future, we need to stake out a place in Web 2.0. That's a place where little regional players can't be as strong." To that end, Supercuts has begun integrating a new icon into its branding, launched a more interactive web page and put training videos and operations manuals online for use by franchisees.
Kartarik also sees a more interactive future with apps that tell customers the wait time for a haircut and that provide instant product recommendations. But he knows, though, it all still comes down to the haircut. "Is the customer happy?" he asks. "That's the bigger part of the puzzle."
6. Days Inn
The old chestnut in the hospitality industry is that hotels are the first to feel a recession and the last to recover. This is demonstrably true. So Days Inn, one of Wyndham Hotel Group's 13 brands and the largest economy hotel chain in the world (based on number of rooms), did what any company in fear for its profit margin would do when tough times struck. It tried to save every penny it could.
"The question you ask yourself in a recession as devastating as this is how do you hunker down and still take care of your customer base?" says Clyde Guinn, president of Days Inn. His solution was to band with other Wyndham properties to whittle costs while protecting sacred cows, such as keeping rooms clean and operational, the front desk friendly and the breakfast fulfilling. In fact, it cut back on capital expenses for new beds or televisions but added more hot items to its breakfast.
The strategies held down the fort in the United States, but the company's real growth has been happening internationally. Days Inn added 12 units in 2009 and 27 in 2010. "China, the U.K., Costa Rica, Russia--we've been growing like a weed," Guinn says.
Developing the brand overseas will likely have a positive effect on domestic sales, he says. "All these countries have a sizable middle class developing. And a defining characteristic of a middle class is that they start to travel. It won't be long before we see an enormous amount of mainland Chinese and people from the former USSR. And when they come to see Mickey and Minnie, they'll want to stay at a Days Inn."
7. Vanguard Cleaning Systems
The success of Vanguard Cleaning Systems is part of a larger story about the recession. As companies have cut costs, they've scrapped their janitorial departments and the benefits that go with them in favor of often lower-cost cleaning franchises. But Vanguard is in the Top 10--and its competitors are not--because its quality and customer service are rare in the cleaning biz. Instead of rushing to put franchisees on the streets, Vanguard has taken care to select the right master franchisees and emphasize training.
"Businesses look to companies like ours because of our training, customer support and quality. It's an opportunity for the customer to expect better," says Mark Heisten, vice president for business development.
That commitment to quality has only helped Vanguard. "2009 was the darkest year for American business in 40 years, but we saw double-digit growth, and we don't see that changing."
The company, which has more than 2,000 franchisees and 56 regional offices, still has enormous growth potential, he says. It sold six regional territories in 2010, with 40 regions still open, not counting Canada, which Vanguard began serving four years ago.
And when the recession is finally over? Heisten says companies will be hooked on Vanguard. "There's a fundamental shift going on among businesses and the types of vendors and partners they work with," he says. "We want to make sure we're part of that."
One good thing came out of the catastrophic floods that hit downtown Nashville, Tenn., last May: It gave Servpro a chance to show its home state what it's all about. The cleanup and restoration company, which specializes in smoke, fire, water and mold damage, mobilized its disaster recovery team and brought almost 700 crews from its 1,600 locations to Music City to help clean up the mess. It showed just how strong a national franchise can be in an industry dominated by small independent operations.
"We were proud we could do that," says Kevin Brown, assistant executive vice president, "but not only in Nashville. We take our commitment to disaster recovery seriously all over the country."
Taking care of insurance partners always has been a big part of Servpro's business model, but during the last few years, it also has stimulated growth through a national advertising campaign aimed at the public and through conversion of mom-and-pop businesses to Servpro franchises. That helped the company add 90 franchises in 2010, including its first foray into Canada. This year, it aims to open 100 other locations.
"People think we're sold out of territories, but we still have about 400 markets available," Brown says. "It's kind of cool that we're 42 years old and still have so much room for growth."
Last April, Subway threw its hat into a crowded ring by introducing a full line of breakfast sandwiches nationally. It was a risk for the hero-slinging behemoth, but according to the company, which does not release sales figures, the initiative exceeded expectations and boosted per unit averages. That has helped keep the 34,000-unit restaurant expanding. It added 2,000 stores in 2010, including 800 new locations outside the United States, and it expects to open 2,100 sites this year.
It's hard to top the introduction of a new menu category, but Don Fertman, chief development officer, says 2011 will be almost as exciting. The company will be adding higher-profile locations with drive-through service to many areas, as well as adding to its 1,600 Wal-Mart units by expanding to other big-box retailers. A new point-of-sale system, which will roll out in the second quarter, will let franchisees break down their sales to a greater degree, helping them refocus advertising and ordering.
But the main drivers of Subway's growth are its flexibility and ability to wedge a store into nontraditional locations--including the top of the Freedom Tower construction site in New York.
"We have footprints that focus on hospitals, airports, or colleges," Fertman says. "If there are potential customers and a couple hundred of square feet, we can put a Subway there."
Denny's is an American institution--which is good and bad. It's got unbelievable brand recognition, but it's also saddled with decades of baggage, including a highly publicized discrimination lawsuit in the 1990s, a reputation as a hangout for late-night hoodlums and a bastion of bad food.
But in 2009, Denny's began a hard and fast climb into the 21st century with one Super Bowl commercial, offering a free breakfast for anyone willing to wait. Two million people went in, and Denny's seized the chance to reintroduce itself and its revamped menu to the general public. It seems to have worked--126 new units entered the system in 2010. Of those, 91 are expected to be conversions from Flying J Travel Centers. This has pushed Denny's to more than 1,600 units, making it the largest full-service restaurant in the country. Its multiyear Franchise Growth Initiative has helped Denny's transfer 301 company-owned stores to franchisees.
But the most important changes are an aggressive advertising campaign that uses social media to drive in younger patrons and new initiatives rolling out. They include the Denny's Café fast-casual model--which is smaller, to fit urban and suburban locations--and to-go service, for customers who don't have time to linger over a cup of joe.