Restaurant operators solidified their position at the top of the Business Journal’s 2018 List of Franchisers amid a good year for the industry overall, as the largest L.A.-based companies grew their combined franchisee pool 7.8 percent to 11,268 locations.
The International Franchising Association, a trade group representing all industries, said recently that franchising was on the rise in the United States, with 733,000 franchise establishments that supported almost 7.6 million direct jobs and more than $674 billion of economic output.
Movers near the top of the Business Journal’s list included Fatburger owner Fat Brands Inc. of Beverly Hills, which rose to No. 8, and Pasadena-based make-your-own-pizza company Blaze Pizza, which ranked No. 10.
Restaurant franchisers account for six of the top 10 slots on the list.
Two of the fastest growers outside the restaurant segment were service providers with a focus on children. Mathnasium Learning Centers, which tutors children in math, stayed at No. 3 while adding 100 locations for a total of 900. My Gym Enterprises, which offers gym classes for children up to 13, rose one spot to No. 6 after adding about 100 new locations for a total of 535 franchises.
Home damage restoration company 911 Restoration Franchise Inc. didn’t make it into the top 10 but was one of the biggest movers on the list, jumping to No. 14 from No. 23 last year.
Robert Kleinhenz, executive director of research at Beacon Economics, said he wasn’t surprised that franchises had grown.
“Even after the recession was very much in the rearview mirror, people and businesses were treading very cautiously in how they were spending money and, in the case of businesses, where they were investing and expanding,” said Kleinhenz. “It’s only in the last few years that firms are recognizing that the consumer sector is very much healthier than it was.”
DineEquity loses franchises
It wasn’t all good news for restaurant franchisers.
Analysts said restaurant demand has increased in part due to millennials’ preference to eat out, but consumers increasingly opt for individual brands or small chains.
Glendale-based DineEquity Inc., owner of the Applebee’s Neighborhood Grill & Bar and IHop franchises, has been a victim of the trend. The company remained No. 1 on the list, but its total number of franchises decreased more than 9 percent to 3,719 locations last year from 4,090 in 2016.
The company announced in August during its second-quarter earnings call that it was revising expectations for the Applebee’s concept and expected between 105 and 135 locations to close in 2017 after domestic same-restaurant sales declined 6.2 percent over the quarter.
Blaze Pizza is hot
Two restaurant companies which bucked the trend of consumers deserting larger chains were Fat Brands and Blaze Pizza.
Blaze Pizza’s growth not only drove it to No. 10 from No. 11 the year before, but also landed it at No. 6 on the Business Journal’s 2017 list of fastest growing private companies with 463 percentage growth in revenue to $185 million in 2016 from $33 million in 2014.
The make-your-own pizza company’s growth continued last year, fed in large part by franchisees opening new locations.
Darren Tristano, former president of restaurant research firm Technomic Inc., told the Business Journal in July that the strong performance of the chain’s individual stores had allowed it to attract best-in-class franchisees who licensed more than one brand and more than one unit.
Fat Brands goes public
Last year was also a banner year for the company owning the Fatburger brand, which jumped to No. 8 from No. 13.
FAT Brands’ parent company Fog Cutter Capital Group Inc. used relatively new equity crowdfunding regulations to raise $24 million from unaccredited investors and take Fat Brands public in October.
Raising money from people other than the traditional investors allowed the average consumer to purchase a piece of the storied brand, said Fog Cutter and Fat Brands Chief Executive Andy Wiederhorn, in a prior interview with the Business Journal.
“I liked that we could offer (shares) to our franchisees, their employees and customers,” said Wiederhorn.
The capital raise fed Fat Brands’ acquisition of several other restaurant brands at the end of the year, which contributed to Fat Brands’ 124 percent growth in franchises to 356 locations last year from 159 in 2016.
Last fall, the company acquired Plano, Texas-based Ponderosa Steakhouse and Bonanza Steakhouse for $10.5 million, adding 120 locations; and West Palm Beach, Fla.-based Hurricane Grill & Wings for $12.5 million, adding 60 locations.
911 Restoration Franchise
One of the biggest growers on the list was 911 Restoration Franchise in Van Nuys.
The company grew its number of franchises by 188 percent to 135 last year from 48 in 2016 due to the nation’s recent natural disasters said founder and Chief Executive Idan Shpizear.
The growth came from years of work and the creation of a related online marketing company, Milestone SEO, said Shipzear.
“It wasn’t just magic over one year,” said Shpizear.
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