Franchises are consolidating — here’s why that’s good

Hey readers,

There’s a quiet but important trend going on in franchising over the last few decades: consolidation.

Here’s what it means, and how it affects you as a potential business buyer.

Over the last six or seven years, Orange Theory — the fitness franchise — has dropped from 800 owners down to just 150.

It’s not that they’re not closing locations. 

It’s that lots of owners are exiting, and others are buying up their locations.

In other words, fewer owners are now running more locations.

The consolidation hasn’t just been an opportunity for buyers, but also an opportunity for sellers.

Let’s dig into it. 

The context

The consolidation trend started a long time ago in fast food brands — what we call Quick Service Restaurants, or QSRs, in franchise world.

Over the last few decades, QSR brands saw a ton of consolidation, as larger franchisees gobbled up smaller ones and rolled up multiple locations under single operators. 

Eventually, you’d have one person or group owning 20, 50, even 100+ locations. (Or, if you’re franchise legend Greg Flynn, 2,600 locations. I’ll write his story sometime soon.)

That kind of thing used to be unique to food. 

But in the last 15 years or so, it started spreading to fitness, beauty, and retail. And in the past five years, it’s sweeping through mobile services, home services, and commercial services.

It’s wildly popular because it’s good for the franchisee AND the franchisor. 

So more and more brands are optimizing for consolidation.

Why it’s good for franchisees (like you)

Let’s start with what you, a potential buyer, gets out of it. 

If you buy into a brand that is pro-consolidation, you’re going to have a ton of growth options in front of you. You’ll get:

• built-in brand awareness

• support systems already in place

• a clear path to bolt on other units

Then when you buy additional units, you can operate more efficiently. Efficiency leads to higher margins, better teams, and ultimately a more valuable business overall.

Not planning to stick around forever? Even better. 

As buyers consolidate, demand (and valuations) go up. At a certain point, institutional capital like private equity starts paying attention. 

There is a flip side, though — as the average operator becomes more sophisticated, the ones who can’t keep up tend to get pushed out. But if you’re someone who can keep up, you’re surrounded by high-level operators. That’s a great network to be part of.

Why it’s good for franchisors (brands)

In terms of revenue, it doesn’t matter to a franchisor whether their ten locations are owned by ten owners or just one. Their money comes from gross revenue, not profit.

So how does consolidation benefit them?

It’s a huge reduction in complexity. Orange Theory would way rather deal with 150 owners than 800. Fewer phone calls. Fewer fires to put out. Easier communication. It’s a huge operational efficiency.

Eventually, the brands can have fewer people on payroll to support the owners.

And here’s the thing: if a franchisor is trading at 15-25x earnings, if they can save, say, $200,000 on payroll, their valuation can swing by $5,000,000.

There’s one other benefit, which impacts both the franchisee and franchisor:

Brand lift.

When a multi-unit operator in your system sells to private equity, it makes headlines. That credibility filters downstream: it attracts better buyers, higher-net-worth prospects, and more interest in the system overall.

So assuming the brand embraces it, everyone wins.

A word of caution for buyers

Not every franchisor is excited about franchisees scaling up.

Some want small, owner-operator-style owners. Some actively resist franchisee consolidation. 

Why? It keeps the power in their hands. It forces operators to be more hands-on. And some fear the risk of something going wrong if one multi-unit owner controls a big chunk of their brand.

So if your goal is to buy and scale — maybe even acquire your way into empire-building — you’ve got to find a brand that sees the value in that.

I work with people on exactly this kind of strategy all the time — evaluating which brands embrace consolidation and helping them structure the right deal to start their journey. 

If that’s where your head is at, let’s talk!

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Thanks for reading.

Connor

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