Franchise Land Booms, Rarely Busting In Smalltown US

01/02/1998 

Eric Ellis reports from Boring, Oregon, typical of the small town franchiseville of the new US economy.

Anyone who says the US economy is aggressively regional and hard to penetrate hasn't been to Boring, Oregon or Gallup, New Mexico or Lancaster, Pennsylvania or Peoria, Illinois.

Or, for that matter, the freeway approaches to just about any city or town in heartland US. It's boringly similar - all Carl's Junior and McDonald's burgers, CrackerBarrell country cooking, Conoco, Chevron and Phillips 66 gasoline, Wal-Mart, Days Inn, Comfort Inn, Holiday Inn competing at $US29.99 per room, the local tyre retailer, kilometres of factory outlets selling designer seconds.

And then there's the turn-off to the Boring mega-mall. The Boring car parks are full - the spending is big in Boring.

It's Chain Store Heaven in Boring, full of Boring people but you could be anywhere. In fact, it looks a lot like the outer suburbs of Australia, just bigger and with more pick-up truck. And guns. And bad haircuts.

Indeed, as the regulars of Boring's main bar, the Boring Bar, in Wally Rd, could attest, as they tuck into their Wendy's Whopper while watching their ice hockey favourites do battle, it's booming in Franchise Land, USA.

Every 10 minutes, Corporate America opens another franchise in one of the endless malls dotting the nation's landscape. Led by familiar names such as Subway, Domino Pizza, Starbucks, Holiday Inn, Burger King and Jiffy Lube, there are 600,000 franchise outlets across the country. And it seems a good few of them are located next to freeways.

And franchisees seem a happy, rich bunch.

According to the Chicago-based trade publication Franchise Times, franchisees average $US1.4 million in gross sales annually from an average 3.5 franchise outlets and take home average earnings of $US171,000.

That's up from $US165,000 last year, perhaps explaining why a Franchise Times survey found that 75 per cent of franchisees describe themselves as either "very" or "somewhat" satisfied with their lot.

Some big corporate names are doing well out of the US franchise boom.

Britain's Grand Metropolitan owns Burger King and Haagen-Dazs, the Anglo-Spanish giant Allied Domecq controls Dunkin' Donuts and Baskin Robbins icecream.

Hospitality Franchise Systems of the US is behind about half the hotel franchises dotted along freeways - Howard Johnson, Super 8, Travelodge, Ramada and Days Inn -and all of them compete in basically the same market.

HFS also owns the real estate firms Century 21, Coldwell Banker and ERA, as well as the Avis hire car operation.

The typical corporate franchisor in the US collects an upfront franchise fee of $10,000-$50,000 per store opening, depending on the location and volume.

Mr Henry Silverman, HFS's chairman and chief executive officer, reckons that "if we owned all the units, 24,000 of them, instead of franchising them, our revenues would be about $US40 billion".

"We'd be bigger than Coca-Cola."

Franchises have also been a good credit risk in the new economy.

A recent study by Frandata, a Washington industry analyst found that "annual closures for all franchised systems, regardless of industry, runs only 1.5 per cent" compared to an estimated 33 per cent failure rate for other new businesses.