National Franchise Ownership Rates Fell 9.4% Between 2014 and 2020, With Birmingham, Ala., Seeing a 63.5% Drop
When it comes to running a business, franchise owners aren’t lovin’ it. In fact, the rate of U.S. businesses operating as franchises fell 9.4% between 2014 and 2020 — though some metros saw declines as high as 63.5%.
This study looks at where franchise ownership rates fell and rose the most, as well as how they’ve changed by race and gender. Entrepreneurs curious about partnering with big names should stick around for tips on buying a franchise.
Key findings
- Franchises are less common than they used to be. In 2014, 5.3% of businesses were operated as franchises. In 2020 (the latest available), 4.8% were operated as franchises. That’s a 9.4% drop.
- Across the 50 largest metros, Birmingham, Ala., saw the largest drop in franchise ownership. In 2014, 6.3% of businesses in Birmingham were operated as franchises. By 2020, that figure fell 63.5% to 2.3%. After Birmingham, Las Vegas (42.0%) and Oklahoma City (32.8%) saw the largest declines in franchise ownership.
- Just 14 metros saw an increase in franchise ownership rates during this period. Milwaukee topped the list, with franchise ownership rates increasing 38.3% from 4.7% in 2014 to 6.5% in 2020. Louisville, Ky., and Cleveland had the next highest increases in franchise ownership at 36.0% and 33.3%, respectively.
- Franchise ownership fell across all races and genders, but minorities and women saw the largest drops. Between 2014 and 2020, franchise ownership among minority entrepreneurs fell by 13.8%, while ownership among nonminority entrepreneurs fell by 8.5%. By gender, female ownership rates fell by 13.6%, versus 7.8% among men.
Franchise rates drop nationally
Between 2014 and 2020, the rate of businesses operating as franchises fell 9.4%. More specifically, 5.3% of businesses operated as franchises in 2014, but that dropped to 4.8% in 2020.
Of course, the COVID-19 pandemic likely impacted franchise ownership rates since the latest data is from the first year of the crisis. Hotels, restaurants and others in accommodation and food services — the industry with the highest percentage of businesses operating as franchises as of 2022, when we last conducted this study — struggled with falling demand with stay-at-home mandates across most of the nation.
In addition, LendingTree chief consumer finance analyst Matt Schulz believes the small business landscape has changed over the years.
“It’s just getting easier for aspiring entrepreneurs to start their own businesses without having to lean on franchising,” he says. “Depending on your idea, you can get a business up and running online in an afternoon. That’s an alluring prospect. While franchising certainly has advantages, many folks would rather operate independently and have more freedom to make decisions and flexibility to run their business than what franchising provides.”
Notably, many small business owners are turning toward e-commerce — a trend also influenced by the pandemic. According to the Bureau of Labor Statistics in 2021, 1 in 3 small business applications filed during the pandemic were in the nonstore retail sector — the highest across industries. It’s followed by the personal services sector. These businesses, which often operate online, require lower startup costs than franchises and offer more flexibility and control.
Franchise rates in Birmingham, Ala., fell 63.5% between 2014 and 2020
By metro, Birmingham, Ala., saw the largest drop in franchise ownership rates during this time. In 2014, 6.3% of businesses in Birmingham were operated as franchises, a figure that fell 63.5% to 2.3% in 2020.
A dwindling population likely plays a role here. Between 2010 and 2020, the population in Birmingham fell from 212,237 to 200,646. As the population falls, demand for franchises will likely take a hit.
It’s also worth noting one franchise, Rally’s Hamburgers, closed about 12 of its greater Birmingham stores in 2019 after a franchise agreement dispute. As of Sept. 15, 2023, the company’s website shows just one open location in Birmingham.
Metros with the biggest drop in franchise rates
Source: LendingTree analysis of U.S. Census Bureau 2014 Annual Survey of Entrepreneurs (covering 2014) and 2021 Annual Business Survey (covering 2020).
Las Vegas saw the next largest decline at 42.0%, going from 6.9% of businesses operating as franchises in 2014 to 4.0% in 2020. Of course, the pandemic may play a larger role in Las Vegas’ decline than most metros, particularly because tourism is such a vital factor in its economy. Not only did tourism suffer for the majority of the year, but the Nevada governor ordered a nearly three-month-long statewide shutdown of all non-essential businesses — closing casino doors in the city. This likely had a major impact on all Las Vegas franchises, particularly hotels and restaurants that rely on tourism.
Following that, the rate of franchises in Oklahoma City fell by 32.8%, dropping from 6.4% in 2014 to 4.3% in 2020.
Full rankings: Metros with the biggest drop in franchise rates
Source: LendingTree analysis of U.S. Census Bureau 2014 Annual Survey of Entrepreneurs (covering 2014) and 2021 Annual Business Survey (covering 2020).
Only 14 metros saw franchise ownership rates grow
Just 14 metros experienced a rise in franchise ownership rates between 2014 and 2020. At the top of the list, Milwaukee saw the most growth, with franchise rates rising 38.3% from 4.7% in 2014 to 6.5% in 2020.
Metros with the biggest rise in franchise rates
Source: LendingTree analysis of U.S. Census Bureau 2014 Annual Survey of Entrepreneurs (covering 2014) and 2021 Annual Business Survey (covering 2020).
Louisville, Ky., was next on the list, with franchise ownership increasing 36.0% from 5.0% in 2014 to 6.8% in 2020. Cleveland rounds out the top three — franchise ownership increased 33.3% from 4.8% to 6.4%.
While a rise in franchises can be seen as good, Schulz says it comes with positives and negatives.
“Starting any type of business is risky, but franchises are often viewed as somewhat less risky,” he says. “That’s because the franchise’s brand and products have already, in theory, proved popular enough to warrant expansion. That gives folks a leg up, which is very appealing when starting a business. In that way, rising rates of franchising in an area could be a negative sign for a community because it implies that businesspeople in that area are a little less likely to be willing to do something on their own.“However, it could also be viewed positively because franchises often have higher ramp-up costs. The fact that more people in the community are willing and able to put up those sums of money to kick-start their business dreams could certainly be viewed as a sign of confidence.”
Minorities and women saw significant drops in franchise rates
It’s not just metros seeing an uneven decline in franchise rates — ownership rates by race have also changed. Between 2014 and 2020, franchise ownership among minority entrepreneurs fell by 13.8%, significantly higher than the 8.5% drop among nonminority entrepreneurs.
According to the U.S. Census Bureau, a firm is considered minority-owned if they’re classified as any race and ethnicity combination other than non-Hispanic and white. Nonminority-owned firms, on the other hand, are classified as non-Hispanic and white.
Specifically, ownership rates among American Indian and Alaska Native entrepreneurs have fallen the most, declining 22.5% from 4.0% in 2014 to 3.1% in 2020. That’s followed by Black or African American entrepreneurs, who saw franchise ownership rates decline 18.7% from 7.5% to 6.1%.
Change in franchise ownership rates by race
Source: LendingTree analysis of U.S. Census Bureau 2014 Annual Survey of Entrepreneurs (covering 2014) and 2021 Annual Business Survey (covering 2020).
Economic influence and access to loans likely play a significant role, particularly as minorities often face challenges obtaining financing for their businesses. According to the Federal Reserve, 38.4% of Black or African American entrepreneurs were approved for the full amount of credit for which they applied in 2020, compared with 62.3% of white entrepreneurs. Meanwhile, 59.7% of American Indian and Alaska Natives received the full credit for which they applied.
By gender, female ownership rates fell by 13.6%. On the other hand, male ownership rates fell by 7.8%. Women are also more likely to face funding hurdles — while 60.0% of male entrepreneurs received the full credit for which they applied, 57.5% of female entrepreneurs had similar experiences. Similarly, 13.7% of female entrepreneurs didn’t receive any credit, higher than the 11.5% of male entrepreneurs who were also denied any credit.
Change in franchise ownership rates by gender
Source: LendingTree analysis of U.S. Census Bureau 2014 Annual Survey of Entrepreneurs (covering 2014) and 2021 Annual Business Survey (covering 2020).
Opening a franchise? Here’s what experts recommend
While franchise ownership rates are falling nationally, investing in a franchise may be right for you. Before you dive in, though, Schulz says there are a few things to keep in mind. Particularly, he offers the following advice:
- Be prepared for how expensive they can be to start up. “Yes, franchises can give you a serious leg up when it comes to starting a business, but the costs can be quite high,” he says. “Make sure that you understand the startup costs as well as the ongoing costs (like taxes) before you jump in.”
- Determine how to finance it. While the upfront fees for buying a franchise typically need to be non-borrowed cash, the ongoing operational costs can be sizable. See which small business loans you qualify for, or consider opening a business line of credit.
- Do some serious homework on the brand you choose. “Leveraging an already-established brand in your next business venture can be amazing,” Schulz says. “However, for all of the positives that come with being part of a big, well-known brand, there are likely some negatives as well. Make sure that you do a deep dive into the brand’s reputation — the good, bad and the ugly — before you fully commit.”
Methodology
To estimate changes in the percentage of businesses owned wholly or partially as franchises, LendingTree researchers analyzed the U.S. Census Bureau 2014 Annual Survey of Entrepreneurs (covering 2014) and 2021 Annual Business Survey (covering 2020).
Researchers then analyzed changes in franchise ownership across the 50 largest U.S. metros and ranked them by percentage change. Additionally, researchers compared changes in franchise ownership rates across race, gender and industry.
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