Franchising is entering a phase of correction but not contraction. After years of aggressive expansion, 2025 forced the industry to confront a tougher operating environment. Rising input costs, tighter financing, and uneven consumer demand exposed weaknesses in unit economics across sectors. As a result, growth slowed, but what emerged is a more resilient and disciplined system heading into 2026.
The projected numbers tell a steady story. Franchise establishments are expected to reach around 845,000 units in 2026, growing at a modest 1.5 percent annually. This is not a slowdown in ambition, it is a shift in approach. Expansion is no longer about adding locations at speed, but about building networks that can sustain profitability over time.
AI Is Reshaping how Franchise Systems Operate
Artificial intelligence is no longer sitting on the sidelines of franchising, it is becoming embedded in how systems function day to day. In 2025, industries such as lodging sharply increased AI investments, and that momentum is now spreading across the broader franchise ecosystem. What is changing is not just adoption, but application. AI is moving into operational decision-making, forecasting demand, optimising labour schedules, refining pricing, and even guiding franchise development.
For large franchisors, this shift is about control and scale. With access to vast amounts of data across locations, they are increasingly building in-house AI capabilities that allow them to standardise decision-making and improve consistency across networks. For mid-sized and emerging brands, the path is different but equally impactful. Instead of building systems internally, they are relying on third-party platforms that now come with embedded AI, allowing them to access similar capabilities without heavy upfront investment.
However, this transformation is not frictionless. As AI becomes part of everyday operations, franchisors are facing rising costs in training and implementation. Franchisees need to be upskilled, workflows need to be redesigned, and systems need to be aligned across networks. In that sense, AI is not just improving efficiency, but it is forcing franchising to evolve operationally.
Growth Continues, But with Greater Discipline
The pace of expansion has slowed, but the quality of growth is improving. In 2025, many franchise systems pulled back from aggressive development pipelines and focused instead on stabilising operations. This included tightening cost controls, improving unit-level performance, and reassessing site selection strategies. That recalibration is carrying into 2026, where growth is expected to continue, but in a more measured and intentional way.
This shift is already visible across global franchise systems. Subway offers one of the clearest examples of this reset. The brand has deliberately reduced its U.S. footprint, with store count falling below 20,000 for the first time in two decades as closures outpaced openings. Rather than chasing scale, the company has focused on removing underperforming locations, improving franchisee quality, and ensuring stores are in the right locations and formats. At the same time, it continues to expand internationally, showing a more balanced and selective growth strategy.
A similar pattern is visible at Starbucks, which has combined expansion with active optimisation. In 2025, the company closed hundreds of underperforming stores while investing in remodels and better-performing formats and is now moving forward with targeted new openings in 2026. The strategy is not about slowing down, but about refining where and how it grows, prioritising store productivity, customer experience, and long-term returns over footprint alone.
This shift reflects a broader reality. In a higher-cost environment, opening new units is no longer the default path to growth. Each new location must justify its economics more clearly, and franchisors are becoming more selective about where and how they expand.
Private Equity is Taking a Longer-Term View
Private equity is returning to franchising, but with a more patient and structured approach. The appeal remains strong. Franchising offers predictable royalty streams, diversified risk across locations, and a model that can scale efficiently. In a volatile macro environment, these characteristics are particularly attractive. However, the way investors are approaching the sector is changing.
Rather than focusing on rapid roll-ups, private equity firms are increasingly building platforms. This involves acquiring multiple brands, integrating operations, and using shared services to drive efficiencies across portfolios. In many cases, they are also taking corporate-owned brands and converting them into franchise systems to unlock capital-light growth.
This approach takes time. As a result, holding periods are extending, reflecting the need to fully integrate acquisitions and realise long-term value. At the same time, investment is not limited to brands. Larger, well-capitalised franchisees are also attracting interest, as they offer scale and operational expertise at the unit level.
New Concepts Are Emerging with Lower Risk and Sharper Positioning
The pipeline of new franchise concepts is expanding, but the nature of these businesses is changing.
One of the most notable shifts is the decline in entry costs. Your data shows that over 67 percent of new concepts require less than $500,000 in initial investment, driven by smaller formats such as kiosks, mobile units, and co-located spaces that reduce real estate and build-out costs.
This is clearly visible in Asia’s fast-growing beverage segment. Tealive has scaled rapidly across multiple markets using compact, flexible store formats and a focused, beverage-led model, allowing faster expansion with lower capital risk. Its sharp positioning and asset-light approach reflect how newer concepts are prioritising efficiency and targeted demand over broad, high-cost formats.
At the same time, new brands are becoming more focused in targeting specific needs such as affordability, wellness, or convenience, making them easier to scale and more resilient in a cost-conscious environment.
International expansion is adding another layer to this trend. In 2025, the number of global brands entering new markets increased significantly, with strong representation from countries such as the UK, Canada, and across Asia. This reflects growing confidence in franchising as a scalable global model.
Franchisees Are Scaling into Larger, More Sophisticated Operators
The structure of franchise ownership is changing in a fundamental way.
Single-unit operators are no longer the dominant force. Instead, multi-unit ownership is becoming the backbone of franchise systems. As of 2025, 19.3 percent of franchisees control nearly 58.8 percent of all locations, highlighting the growing concentration of scale.
This shift is being driven by both sides of the equation. Franchisees are looking to expand in order to improve returns and leverage their operational expertise. At the same time, franchisors are actively encouraging existing operators to take on additional units, as this reduces execution risk and accelerates expansion.
This is already visible in large franchise systems, where operators managing brands under platforms like Inspire Brands are running multiple units across different concepts, reflecting a clear shift toward portfolio-style ownership.
A similar pattern is emerging in Asia, where franchise partners of Yum! Brands are steadily expanding across KFC and Pizza Hut networks, building regional, multi-unit businesses rather than single-store operations.
The result is the rise of more sophisticated ownership models. Multi-unit, multi-brand, and even multi-sector operators are becoming increasingly common. Some franchisees are also evolving into investors, acquiring stakes in brands or launching new concepts themselves. This “operator-to-owner” dynamic is reshaping the power balance within franchising.
Unit-Level Performance Is Under Pressure but Becoming Stronger
Franchise performance has been tested over the past two years. The historical unit success rate declined through 2024 and reached around 94.2 percent in 2025, reflecting the impact of higher costs and softer demand. For many systems, this has been a period of adjustment rather than expansion.
A simple way to understand this: if a brand had 100 stores, earlier almost all would stay open and perform reasonably well. Today, a few weaker locations, five or six, may struggle due to high rents or lower demand. Instead of supporting all of them, franchisors are choosing to shut or transfer those weaker outlets.
This pressure is driving improvement. Franchisors are taking a more active role in managing network quality by closing underperforming units, tightening operational benchmarks, and ensuring greater consistency across locations.
While this may lower success rates in the short term, it strengthens the overall system. Much like the reset seen during the pandemic, this phase of consolidation is expected to create a more resilient and productive franchise network, with recovery likely in the latter half of 2026.
Capital Is Being Redirected Toward Efficiency
How franchise systems allocate capital is changing. In the past, a significant portion of investment went into new store development and physical upgrades. Today, that focus is shifting. With margins under pressure, franchisees are prioritising investments that improve efficiency such as technology, marketing, and operational systems.
This is already visible in brands like Domino’s, which has continued to invest heavily in its digital ordering and delivery ecosystem rather than large-scale store redesigns, ensuring higher throughput and better unit economics without significantly increasing capex.
This shift is also visible in rising transfer activity. As older franchisees exit and stronger operators expand, ownership is consolidating. In some cases, franchisors are also restructuring territories to improve unit viability, combining markets or reallocating resources to better-performing locations.
At the same time, spending on store remodelling is expected to decline in 2026, as capital is redirected toward areas that deliver more immediate returns.
International Markets Are Driving the Next Phase of Growth
Global expansion is becoming a central pillar of franchise strategy. As domestic markets become more competitive, brands are increasingly looking outward. Established markets such as the UK, Canada, and Australia continue to attract investment due to their stability, while high-growth regions in Asia and the Middle East offer significant long-term potential.
This is already visible in brands like Tim Hortons, which has accelerated its international push across markets such as India and the Middle East through master franchise partnerships, adapting its format and menu to local preferences while maintaining a scalable model. Similarly, Popeyes has expanded aggressively across Europe, Asia, and the Middle East in recent years, relying on strong regional partners to drive rapid rollout without heavy direct investment. These strategies highlight how global growth is increasingly being driven by asset-light, partnership-led expansion.
The approach to international expansion is also evolving. Rather than entering markets directly, many franchisors are partnering with master franchisees who bring local expertise and capital. This allows brands to scale more quickly while managing risk.
For many systems, international growth is no longer optional, it is essential for maintaining momentum.
A More Structured, More Resilient Future
Franchising in 2026 is defined by structure. Technology is becoming embedded in operations. Ownership is concentrating among more capable operators. Capital is being deployed more carefully. And growth is being driven by systems rather than speed.
The industry is not expanding as quickly as it once did, but it is becoming stronger in the process.
The next phase of franchising will belong to brands that can balance scale with discipline, and to operators who can execute consistently across locations. In that sense, the model is not just evolving but maturing into a more resilient and efficient form of business.
