Why does San Antonio have so many franchises?
https://sanantonioreport.org/san-ant...ny-franchises/
Potranco Road in San Antonio’s fast-growing far West Side is lined with recently constructed buildings containing a certain kind of business: Dutch Bros Coffee. StorageMart. Jiffy Lube. 7/11. Notice the pattern?
Nearly 10% of businesses in San Antonio are franchises, according to a 2019 analysis of Census data. That’s a higher rate than any other city in the country and nearly twice the national average.
The reason is perhaps illustrated by Larry Mitchell, a veteran who became of the city’s newest business owners just two weeks ago.
Mitchell said he’d long wanted to open a business and explore his entrepreneurial leanings. But after a long career in the Air Force and a stint as an executive at a San Antonio company, he found himself with ample leadership experience but no technical trade knowledge.
“That’s why franchising was perfect for me,” he said. “I could choose something interesting and have the strong support of a franchise that’s been operating for a while.”
A franchise broker at a virtual jobs fair for veterans helped Mitchell and his wife narrow down a list of franchise opportunities from a list of hundreds. First they chose ten, then three and finally one.
Eight months after starting the process, Mitchell is now the owner and operator of a franchise location for All Dry Services, a Florida-based restoration and cleanup company that helps homeowners and other businesses keep mold at bay.
So far he and his one employee, a technician, have assessed the houses of a few potential clients. “We’re waiting to pop the champagne until the first successful job is completed.”
Mitchell’s story is a common one. Franchising is a popular choice for many veterans, said Teri Villanueva, a San Antonio-based franchising consultant with FranNet, which helps connect prospective business owners with franchisors.
“I bet that if you dug deep into the owners of franchises here, a good percentage are probably veterans,” she said.
San Antonio, whose city government has trademarked “Military City USA,” is home to one of the largest concentrations of military bases in the United States.
Most of the clients Villanueva works with are, like Mitchell, interested in opening a business but have no previous experience. Franchises offer a tested model with support. “It’s almost like a business in a box,” she said.
Another reason for San Antonio’s glut of franchises might be the simple fact that it’s in Texas. The state blows out every state with the franchise rates in its cities. According to the same analysis that put San Antonio first, Dallas and Houston claim the third and fourth ranks for top franchised cities. Even Austin — where “Keep Austin Weird” originated as a slogan to support local independent businesses — ranks only a few pegs down the list, still far above the national average.
Texas’ affinity for franchises isn’t likely to change. The state had the highest growth rate of franchises in 2021, according to a recent report from the International Franchise Association. The report estimates that franchised businesses in the state will produce an economic output of $76 billion in 2022.
The boon in remote and hybrid work has driven more migration to an already-fast growing state, the report said, fueling consumer demand and growing labor pools.
San Antonio in particular saw the largest increase in residents from 2020 to 2021, according to census data. That’s another key point brought up by franchisees here.
“I’ve got the entire San Antonio market under my domain, and that’s exciting,” said Joe Shields, who just opened the first franchise location for Andy’s Frozen Custard, a frozen treats chain headquartered in Missouri.
It’s the second franchise for Shields, who already owns the Alamo Heights location of Nothing Bundt Cakes. Shields, a grandson of Red McCombs, has no plans to leave his full-time job at McCombs Enterprises. But he sees franchises as an opportunity to zero in on established brands that could be a good fit for San Antonio and to flex his muscle in marketing.
“They’ve already nailed the product,” Shields said. “My job is to figure out how to market it for consumers here.”
San Antonio was a natural market for Andy’s because it’s hot, he said. (And recently it’s been extremely hot.) “The hotter it is, the more sales go up,” he said.
But while the franchise model allows him to focus on his strengths without sweating the concept, he said the drawback is the royalty fees paid to the franchise, “which are significant in a low-margin business,” such as the drive-thru food industry.
Royalty fees for franchises vary by sector and by franchisor, Villanueva said, and can be anywhere from 3% to 10%. Prospective franchisees get a disclosure form from franchisors outlining these rates and other details in advance.
While many say franchises are less risky, some research indicates that franchises are no less likely to fail than independent businesses. FranNet, the franchise brokerage firm Villanueva works for, reports that its own franchise clients survive at a much higher rate because it is selective in the franchises it guides clients toward.
But as Mitchell has discovered, franchise or not, business owners who take this path are subject to the same market forces as others. He’s struggled to fill his business’ opening for a third employee, a marketer. Until then, he and his one other employee take turns being on call for their 24/7 business.
“No matter how good the franchise is, or how proven the model is, you’re gonna face the problems that all business owners face,” he said.
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