With sales of over $1 trillion worldwide, franchising has been called the world’s most successful business model. So why aren’t there more franchise billionaires? We read an article called 5 Billionaire Franchisors and How They Did It and thought “Five? There are 400 billionaires on Forbes magazine’s list of the richest people in the world, and all they could come up with was five from the franchise world?” But it’s OK, we have a theory on why franchising doesn’t lend itself to filthy lucre on that scale. Oh, and we found five more franchisor billionaires.
Forbes came out with its 2012 Billionaires List a couple of weeks ago, and we weren’t surprised to see it’s still mainly men who have made their fortunes mainly through extractive and exploitative endeavours. The fact that franchising is neither extractive nor exploitative obviously doesn’t stand it in good stead in that company. We thought there may be some franchisors among the twenty newcomers on the 2012 Forbes 400, but many were heirs or heiresses (Steve Jobs’s widow, Laureen Powell Jobs, came in at #28) or worse, technology geeks and financial traders. We were holding our breath when we read about Andrew and Peggy Cherng’s Panda Express, which now has nearly 2,000 Chinese restaurants throughout the United States, but only five of these are franchised. Damn!
Our theory on why franchising doesn’t figure greatly in the billionaire lists relates to risk and return. To become a billionaire, you’ve got to be willing to bet big. But franchising’s not like that. Let’s say Andrew and Peggy Cherng had franchised Panda Express instead of funding the businesses’ growth themselves. That would have reduced their risk by effectively spreading it between themselves and their franchisees. The flipside to that, though, is that they would have also had to share the return with their franchisees. Panda Express’s growth may have been faster with franchising, but the Cherngs would have had to wait longer to hit the Forbes 400.
So who are the billionaire franchisors, and how did they do it? In particular, how did they get their starts, what did they do differently that gave them their edge, and what are they best known for?
The five billionaires featured in the article 5 Billionaire Franchisors and How They Did It were Jack C Taylor of Enterprise Rent-a-Car (worth $6.5 billion), William Barron Hilton of Hilton Hotels ($2.5 billion), Fred DeLuca of Subway ($1.8 billion), Michael Ilitch of Little Caesars Pizza ($1.5 billion), and John W. Marriott, Jr. of Marriott Hotels ($1.3 billion).
While you could argue that only three of these men were self-made, the article points out that both Hilton (who has the dubious distinction of being Paris Hilton’s grandfather) and Marriott both made massive contributions to what their fathers had begun and what their businesses are today.
For our own list, we were more interested in franchise founders, and only really those who had had something original to offer. We decided the 5 Billionaire Franchisors list was too American-centric and cast our net across the world, although we still ended up with three Americans. And we decided to extend the list to billionaire franchisors who are no longer with us, but whose spirit lives on in their franchises today.
Initially, we also decided to include billionaires who weren’t primarily known as franchisors, but for whom franchising had contributed to their sizable fortunes. But we changed our mind when we found that although Ingvar Kamprad, the founder of IKEA, has more than 300 franchised stores, most of them are franchised to his own companies as part of what some believe is an elaborate tax minimisation strategy.*
S Truett Cathy, Chick-fil-A
2012 Net worth: $4.2 billion
We went with Cathy first, not because he is the best looking on the list but because he is in the news at the moment with Chick-fil-A’s controversial stand against gay marriage in the United States. And we love Chick-fil-A’s famous “Eat Mor Chikin” advertising campaign with its sign-holding and talking cows. Although we have to say we found it a little disturbing when they parachuted some cows on to a football field during a game.
> Watch the video here.
Cathy got his start in 1946 when he opened the Dwarf Grill sandwich shop, so named because of the tiny size of the shop, not Cathy. Twenty-one years later, he launched the first Chick-fil-A at Greenbriar Mall in Atlanta. His biggest innovations were the “invention” of the original chicken sandwich (that’s American-speak for burgers or rolls), the ability to undercut his competition by using cuts of chicken that were unwanted by other food service providers (chicken breasts too big for airplane trays, for example) and therefore less expensive, and being among the first fast-food chains to establish themselves in shopping centres. Today, his chicken sandwiches, nuggets and waffle fries have a cult following across the South, where Chick-fil-A has more than 1,500 stores and mall food court outlets and a turnover of around $3 billion per year.
A devout Baptist, Cathy has had it written into Chick-fil-A’s franchise agreement that all stores are closed on Sundays so his franchisees and their employees can go to church, a move that is estimated to cost the company $500 million in annual revenues.
Rosalía Mera Goyenechea, Zara Fashion
2012 Net Worth: $4.5 billion
We were sad to learn that Mera passed away recently. You’ve probably never heard of her, but that’s because she wasn't an American and therefore didn’t feature in all the business magazines. She was, however, one of the richest women in the world, and one of only two on the Forbes list who were self-made. But those are just two of the reasons we’ve included her on our list. Another is that her fashion franchise empire, Zara, has been described as “possibly the most innovative and devastating retailer in the world” by Louis Vuitton Fashion Director Daniel Piette. One of the reasons for that was that Mera and her former husband Amancio Ortega reinvented the fashion design and production process so it can take as little as two weeks for a new product to be developed and rushed out into their stores. Because of this, Zara is able to launch 10,000 new products a year. They don’t advertise, which keeps the cost of their products down. Today, there are Zara stores in 73 countries, the closest being Australia, where there are stores in Sydney, Melbourne and soon, Adelaide.
Having got her start as a seamstress when she dropped out of school at 11, Mera owned 5.8% of the $16 billion Zara fashion empire and contributed her time and money to her many interests, which included a marine fish farming group, a company that looks for cancer treatments in compounds found in the sea, and her Paideia Foundation helps people with physical and mental disabilities.
Thomas Monaghan, Domino’s
Net Worth: Hard to say as he has given most of his fortune to charity
Like Rosalia Mera, Thomas Monaghan had a hard start in life, having been sent off to an orphanage at age six when his father died. The experience gave him a burning desire to succeed in life and a devotion to Catholic charitable causes. Like Subway’s Fred De Luca, he started his first business in 1960 while he was at university.
"I started out in architecture school, and got into the pizza business to pay my way through school,” he has been quoted as saying. “The pizza business was losing so much money I never got back into architecture.”
Also like De Luca, Monaghan bought out his business partner, in this case his brother with a Volkswagen Beetle for his half of the business, and set about expanding by developing the delivery side of the business – Monaghan is credited for creating the cardboard pizza delivery box and the “30 minutes or it’s free” advertising campaign – and through franchising. By the mid-eighties, there were three Domino’s stores opening every day, and in 1998, Monaghan sold the business for a reported $1 billion. Two years later the new owners brought him back to turn the foundering stores around. Today, Domino’s is the second-largest pizza chain in the United States after Pizza Hut, and has more than 9,700 stores in seventy countries.
Anita Roddick, The Body Shop
Sadly, Roddick passed away in 2007, but she had packed an enormous amount of life into her 64 years. She was yet another successful person whose success seemed to have stemmed from a hard start in life, just as we’ve seen from Rosalia Mera and Thomas Monaghan. Born in an English bomb shelter during the Second World War, she was the daughter of poor Italian immigrants. Her parents divorced when she was nine, and at 19 she found out that her step-father, who had died just a few years after her mother re-married, had in fact been her biological father.
Roddick was no stranger to controversy, either. It was revealed after she had started The Body Shop in Britain that she had copied the name, concept and even the text of her first brochure from a store that had inspired her in San Francisco. Although Roddick was one of the first business people to prohibit the use of ingredients tested on animals and one of the first to promote fair trade with third world countries, there was further controversy over the authenticity of the company’s social responsibility claims, and still further controversy when Roddick sold out to L’Oreal in 2006 for more than 600 million pounds.
Today, The Body Shop has nearly 3,000 stores in 60 countries. Explaining the business’s success in 1993, Roddick told Third Way magazine:
“The original Body Shop was a series of brilliant accidents. It had a great smell, it had a funky name. It was positioned between two funeral parlours- that always caused controversy. It was incredibly sensuous. It was 1976, the year of the heat wave, so there was a lot of flesh around. We knew about storytelling then, so all the products had stories. We recycled everything, not because we were environmentally friendly, but because we didn’t have enough bottles. It was a good idea. What was unique about it, with no intent at all, no marketing nous, was that it translated across cultures, across geographical barriers and social structures. It wasn’t a sophisticated plan, it just happened like that.”
Roddick’s last act on her death in 2007 was to leave most of her fortune to charity, including the controversial social activist organisation 38 Degrees. "I knew what would make Anita really laugh would be to cause a lot of trouble," said her husband, Gordon Roddick.
Ray Kroc, McDonald’s
Although everyone in franchising knows, or should know, the story of Ray Kroc, and although he died in 1984, we don’t think any list of franchising billionaires is complete without him. His legacy to the franchising industry is considerable, but a whole raft of myths have grown around his legend. Most of these have proven to be, well, a crock.
One is that he had drifted through life, barely getting by as a musician, radio announcer and finally travelling milkshake machine salesman, until in his late fifties he had an epiphany and bought McDonald’s. What gets overlooked is that if Kroc wasn’t wealthy, he must have had considerable access to capital to have paid $2.7 million, worth much more back then than it is even today, to the McDonald brothers.
Another myth is that Kroc “invented” franchising – that is, a systemised approach to a business which can be replicated by franchisees. He didn’t. He simply improved on and added to the system already developed by the McDonalds. His genius was not only his belief in the system, but his belief in the system’s ability to change the way business is done.
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* Despite Ingvar Kamprad not making our list because he’s not a real franchisor, we still like hearing stories of the Swedish billionaire’s famous frugality and thought we would include a couple here. The Daily Mail reported that back in 2008, a statue of Kamprad was erected in his Swedish home town, and he was invited to cut the ribbon. Instead he untied the ribbon, folded it neatly and handed it to the mayor, telling him he could now use it again. "I am a bit tight with money, a sort of Swedish Scotsman,” Kamprad explained.
And when he arrived at a gala evening to collect an award for Businessman of the Year, the security guards refused to let him in because they had seen him getting off a bus when he arrived.
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