UNH Study Reveals Franchisors
Outperform Nonfranchise Firms
Contact: Lori Wright
UNH Media Relations
March 30, 2005
DURHAM, N.H. – Franchisors create more value and perform better
financially than their nonfranchise competitors, according to a
new study released by The William Rosenberg International Center
of Franchising at the University of New Hampshire Whittemore School
of Business and Economics.
The study, “Does Franchising Create Value? An Analysis Of
The Financial Performance Of U.S. Public Restaurant Firms,”
was selected the winner of the 2005 International Franchise Association
Educational Foundation's Arthur Karp Research Award for “Best
Applied Paper.” The paper, authored by E. Hachemi Aliouche,
senior research fellow with the Rosenberg Center, and Udo Schlentrich,
director of the Rosenberg Center, was selected from papers submitted
to the International Society of Franchising conference to be held
in May at the Westminster Business School in London.
“Franchising has grown so fast since the 1950s that it is
now pervasive in the U.S. economy. In a recent study commissioned
by the International Franchise Association, PriceWaterhouseCoopers
estimated that in 2001 there were more than 767,000 business establishments
in the United States engaged in franchising, providing directly
or indirectly more than 18 million jobs, over $506 billion in payroll,
and over $1.5 trillion of output,” according to the researchers.
“Franchising now dominates certain sectors of the U.S. economy.
For example, over 56 percent of quick service restaurants are franchises.
Franchising is also one of the fastest growing U.S. exports, and
it is now estimated that franchising (in terms of number of franchised
units) will grow 12 to 14 percent per year in the future.”
Forty-one firms were examined in the study -- 24 franchisors and
17 nonfranchisors. Franchise firms included Applebees, Benihana,
CEC Entertainment , CKE Restaurants. Jack In The Box, Outback Steakhouse,
Panera Bread Co, Papa Johns, Ruby Tuesday, Sonic and Wendy's. Nonfranchise
firms included Bob Evans Farms, Cheesecake Factory, O Charleys,
Landrys Restaurants, Lubys, Piccadilly Cafeterias, and Lone Star
Steakhouse Saloon. In order to avoid biased results, McDonald’s,
the largest firm in the sample, was dropped from the list of franchisors.
Researchers used two metrics to evaluate companies: Economic Value
Added (EVA), a value-based performance tool used to compute the
true economic profit of a firm, as opposed to its accounting profit
(such as net income); and Market Value Added (MVA), which measures
the market value that a firm has created.
The study uncovered evidence that over the 10-year period 1993-2002,
U.S. public restaurant franchisors have created more value than
their nonfranchising competitors. “Franchising firms minimize
agency problems, and have access to cheaper capital, motivated managerial
expertise, and better local market knowledge,” according to
The study found franchisors have a slightly higher propensity to
create market value and economic value than nonfranchisors, and
franchisors generate on average higher MVA and EVA than do nonfranchisors.
“The real value of franchising to a firm is the improvement
in business performance due to its choice of growing through franchising
instead of growing through its own means,” according to the
The William Rosenberg International Center of Franchising aims to
explore and advance the understanding of franchising, which represents
more than $1 trillion of the business conducted in the world annually.
The center offers a franchising class for business students at the
Whittemore School of Business and Economics and is actively involved
in the communities of franchising, both to gain information about
current trends and challenges and to share insights and solutions.
The center interacts with industry experts and the International
Franchise Association (IFA) to produce timely and meaningful research
reports and forecasts. Currently, the center maintains the Franchise
50 Index, an extensive financial database of publicly listed franchising
corporations, and is in the process of building the world’s
most comprehensive research bibliography on franchising.
The full report is available at http://www.unh.edu/news/docs/franchisingvaluereport.pdf.
For more information on the William Rosenberg International Center
of Franchising, please visit the center’s web site at http://franchising.unh.edu.