May 23, 2020 - Economy

The little guy behind the big brand

Illustrated collage of two women looking at a tablet while cut outs of Abraham Lincoln fall all around.

Illustration: Eniola Odetunde/Axios

Familiar chains that look like giant corporations are often independently owned small businesses that are getting wrecked by the pandemic alongside local mom-and-pops.

The big picture: Franchising has exploded in recent decades, with 733,000 franchise establishments employing more than 7.6 million Americans. The coronavirus closed 74% of them, according to a survey by the International Franchise Association.

Be smart: Fewer than half of all franchises are restaurants. The rest are in sectors like home health care, business services, hotels, auto repair, child care, dry cleaning, gyms, salons and spas.

  • They pay a one-time fee — usually tens of thousands of dollars — to buy a franchise, then give a percentage of their sales to the parent company in exchange for national advertising support and the right to use their brand and processes.
  • The franchisee is responsible for day-to-day operations, including staffing.

What they're saying: “We like to think that franchisees have these huge war chests of money, but they’re boot-strapping it. They’re small businesses that don’t have a lot of money,” Jania Bailey, CEO of franchise consultant group FranNet, told Restaurant Dive.

  • “Many [franchisees] will put everything on the line — they do a 401(k) rollover, they invest their retirement fund, take second mortgages on their homes — anything and everything to get that business open. And they scrape together to get it up and operational and get cash flowing positive, and they’re starting to see a little bit of profit, and then something like this happens and it just wipes them out.”
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