Failure Rates of the 10 Most Popular Franchises
April 26, 2010
Failure Rates of the 10 Most Popular Franchises What are the failure rates of the 10 most popular franchise opportunities? CNNMoney.com recently published the list they determined were the “most popular” franchises based on the dispersal of SBA loans to franchise owners.
According to CNNMoney.com, the “loan data is from the Small Business Administration, covering loans made from October 2000 through September 2009. The failure rate represents the number of loans in liquidation or charged off, divided by the number of loans disbursed.”
The Matco Tools was deemed the riskiest franchise with a 36% franchise loan default rate.
Cold Stone Creamery franchise was listed as 2nd worst with a 31% failure rate.
The much maligned (& litigated) Quiznos franchise was 3rd worst with a 25% default rate.
The Curves franchise was the 4th worst, with a 16% SBA loan default rate (no surprise to readers of this site or to those who left 600+ comments on our Curves franchise discussion)
Also posting a double-digit default rate is heavily promoted The UPS Store franchise with a 12% SBA franchise loan default rate.
|Franchise||# SBA Loans||$$$ Dispersed||Avg. Loan||Failure Rate|
|The UPS Store||1,085||$159.4M||$146,943||12%|
|Cold Stone Creamery||774||$180.9M||$233,687||31%|
The winners include Super 8 and Days Inn motel franchises with 4% and 6% respectively, Subway with a 7% default rate and Dairy Queen & Dunkin’ Donuts franchises with 8% default rates.
Franchises with the Highest Failure Rates:
Here are comments from the CNN writer, from worst to best:
Matco Tools franchise – 36%: “Tool manufacturer and distributor Matco is the riskiest investment on the top-10 “most popular” list, with more than one third of its SBA-backed loans going bad.”
Cold Stone Creamery franchise – 31%: “The product is sweet, but the financials can be bitter. In the last 10 years almost one in three SBA-backed franchisees defaulted on their loan.”
Quiznos franchise – 25%: “One in four franchise owners was unable to make good on their SBA-backed loan. Quiznos recently settled four class-action suits brought by its franchisees, agreeing to pay as much as $100 million to end years of wrangling over its pricing, royalties and fees.”
Curves franchise – 16%: “The overhead costs are pretty low, but the investment can be risky. Curves’ fast expansion goes hand in hand with a relatively high churn rate, and almost 16% of its SBA-backed franchise loans this decade failed.”
The UPS Store franchise – 12%: “Seven years ago, they [MBE franchisees who converted] filed suit against UPS, and will finally take their case to trial later this month in Los Angeles. Meanwhile, UPS rolls on, adding new franchisees to its network for an initial fee just shy of $30,000.”
Franchises with the Lowest Failure Rates:
Super 8 franchise – 4%: “Getting into the motel industry is pricey… but it’s also a pretty safe bet. Among the handful of franchise brands… a notable number are hotels and motels. Super 8 has the lowest default rate on this top-10 list, hovering just under 4%.”
Days Inn franchise – 6%: “Days Inn is another member of the Wyndham Hotel Group’s franchise family. Launched in 1970, the chain currently boasts 1,900 hotels throughout 15 countries.”
Subway franchise – 7%: “With fewer than 8% of SBA-backed borrowers defaulting on their loans, Subway has a better track record than similar brands — rival sub shop Blimpie has a 46% loan failure rate, and Quiznos is also well into the double digits.”
Dairy Queen franchise – 8%: “Today, it boasts 5,700 locations around the globe and a single-digit failure rate for its SBA-backed franchise loans, making it one of the safer investments in the food franchise market.”
Dunkin’ Donuts franchise – 8%: “Dunkin’ Donuts’ modest default rate is matched by its corporate sibling, Baskin-Robbins, which had a 10% failure rate for its SBA-backed loans.”
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