What FRANdata Thinks

Franchises Answer Call to Action as Natural Disasters Rise

April 19th, 2019 by Ritwik Donde

Every year, major earthquakes, floods, hurricanes, and other natural disasters occur across the U.S. These natural disasters disrupt daily life and, in the worst cases, cause massive devastation. Events such as Hurricanes Katrina and Sandy killed thousands of people and generated billions of dollars in losses. Since 1970, the number of disasters worldwide has more than quadrupled to around 400 a year.[1] According to an independent research conducted by reinsurance company Swiss Re, natural disasters in the United States along cost $155 billion in 2018[2].

While natural disasters are a cause of concern to the general public, the franchise industry has been quick to offer their assistance to those in need, bringing support and hope to devasted residents. Leveraging their network of shared resources and using their brand equity as a national player, franchises are particularly well-positioned to respond to these fast-moving natural events. Take for instance, the restoration products and services industry. In the period from 2015 to 2017, this industry vertical added more than 2,000 new franchised businesses, and the number of franchised businesses grew at a CAGR of 3% in the same period. From 2016 to 2017, both large and emerging brands alike have capitalized on the rising demand for restoration services with plans to add hundreds of new franchises. For example, Restoration 1, a relatively new player in the market, announced its plans to expand to more than 500 locations nationwide in the next four years up to 2023[3].

Private equity and M&A deals were also highly influenced by the rising demand for restoration services. Delta Disaster Services was acquired by Baird Capital-backed HRI Holdings, Inc. in 2018[4], followed by one of the largest restoration services franchise, Servpro being acquired by the BlackStone Group for more than $1 billion in 2019[5]. The same year, AdvantaClean was acquired by Trilantic North America-backed Home Franchise Concepts. At the same time, large franchisees of disaster restoration brands grew through consolidations. For instance, in late 2018, DSI Holdings, the largest owner and operator of ServiceMaster Restore in the United States acquired the second largest franchise ownership group in the ServiceMaster network, ServiceMaster by Hedden.

It was not just the restoration franchises that capitalized on the opportunity presented by the rising number of natural disasters. The number of franchised businesses in the junk removal and moving services vertical grew by close to 11% from 2015 to 2017, while adding close to 400 new franchises in the same period. Meanwhile, the painting services industry saw more than 1,300 new franchised businesses being added by franchisors, and the number of franchised units for this industry increased at a CAGR of 3%.

With as many as 14 tropical storms predicted for 2019[6], franchises seem to be primed and ready to answer the call to action in times of need.

[1] The Economist, August 2017

[2] The Washington Post, December 2018

[3] Cleanfax, January 2019

[4] PEHub, March 2018

[5] The Wall Street Journal, March 2019

[6] CountryLiving Magazine, April 2019

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