Subway Again Tops "Franchise 500" Rankings

This posting was written by Peter Reap, editor of CCH Business Franchise Guide.

Entrepreneur magazine has recently announced its 2007 “Franchise 500” Rankings and—for the 15th time in 28 years—sandwich shop franchisor Subway tops the list. The magazine, which has been assembling its rankings since 1980, claims to have “perfected [its] ranking procedure, giving [it] a formula that accurately identifies today's top franchise opportunities.”

Only franchisors that submitted their full Uniform Franchise Offering Circulars (UFOCs) or Canadian disclosure documents, and whose information was verified by the magazine, were considered. A franchisor must also have a minimum of 10 units with at least one in the U.S., must be seeking new franchisees in the U.S., and cannot be in bankruptcy at the time the rankings are compiled (with the exception of Canadian-based companies that are expanding only in Canada.)

All companies, regardless of size, are judged by the same criteria: objective, quantifiable measures of a franchise operation, according to the magazine. The most important factors include the franchisor’s financial strength and stability, growth rate, and the size of the franchise system. The magazine also considers the number of years a franchisor has been in business, the length of time it has been franchising, startup costs, litigation, percentage of terminations, and potential available financing from the franchisor. An independent CPA audits the financial data considered by the magazine. Subjective elements such as franchisee satisfaction or management style are not considered.

While highly-ranked franchisors invariably use their “Franchise 500” listings to promote the sale of franchises, it should be noted that the rankings may indicate more about the success of franchisors than about the success of their franchisees. Many of these factors (e.g., size of franchise system, growth rate) do not necessarily reflect how franchisees are faring.

Over the last two decades, Subway itself has been involved in many legal disputes with its franchisees. In the 1990s, the disputes often concerned encroachment of franchisees’ market areas. At the same time, the franchisor was criticized by franchisees for its aggressive enforcement of arbitration clauses in franchise agreements.

More recently, Subway franchisee organizations have brought lawsuits, alleging that the franchisor’s changes to its franchise agreement take control of franchisee advertising funds away from independent franchisee boards and give it to the franchisor, according to Entrepreneur.

Following is a list of the magazine’s top 10 franchises, a description of the franchised business, and estimated startup costs:


1. Subway......................Sandwiches and salads.......$74.9K – 222.8K

2. Dunkin’Donuts..............Donuts & baked goods...........$179K – 1.6M

3. Jackson Hewitt Tax Service....Tax preparation..........$48.6K – 91.8K

4. 7-Eleven...............................Convenience stores..................Varies

5. UPS Store/Mail Boxes Etc.........Postal services..............$153.95K-266.8K

6. Domino’s Pizza....................Pizza................................$141.4K-415.1K

7. Jiffy Lube........................Oil changes...........................$214K-273K


8. Sonic Drive-Ins................Drive-in restaurants................$861.3K


9. McDonald’s.....................Fast food...............................$506K-1.6M


10 Papa John’s.....................Pizza.....................................$250K


Entrepreneur’s complete Franchise 500 for 2007 can be viewed here.