What Is Same-Store Sales
Same-store sales (also called "comp sales" in some franchise disclosures) measures revenue growth from locations that have been open for at least 12 consecutive months, excluding new unit openings. This metric isolates organic growth from the noise of expansion, showing you whether existing franchises are actually performing better year-over-year or stagnating.
Franchisors report same-store sales data in Item 19 of the Franchise Disclosure Document (FDD), though the format varies widely. Some provide ranges (like "60% of our franchisees achieved 3-8% same-store sales growth"), while others cherry-pick their best performers. This inconsistency is exactly why you need to read Item 19 critically during due diligence.
Why It Matters for Franchise Buyers
Same-store sales reveals the real trajectory of franchisee profitability. If a franchisor claims strong growth but same-store sales are flat or declining, that means revenue is only increasing because they're opening new locations, not because existing franchisees are making more money. This distinction determines your actual return on investment potential.
When evaluating territory rights and renewal terms, same-store sales performance tells you whether the business model sustains itself or deteriorates over time. A franchise with negative comps suggests market saturation, outdated systems, or weak brand positioning. Conversely, consistent positive same-store sales indicate the franchisor is reinvesting in support and marketing rather than just collecting franchise fees from new recruits.
How to Interpret Item 19 Data
- Look for actual percentages: Franchisors must disclose same-store sales in Item 19 of the FDD. Federal Trade Commission regulations require clear presentation, but franchisors can exclude units with poor performance or present data selectively. Compare the number of units in the sample to total system size. If they report only 40% of their franchisees' sales, that's a red flag.
- Check the time period: Same-store sales data is typically reported year-over-year. Ask whether the franchisor is comparing 2024 to 2023, or cherry-picking a favorable comparison period. Request three to five years of historical data from franchisees directly during reference calls.
- Distinguish from system-wide sales: System-wide sales includes all locations plus new franchises. A franchisor might report 12% system-wide growth while same-store sales are 2%. That 10-point gap tells you new unit growth is masking stagnation at existing locations.
- Ask about franchise fee structure: If the franchisor is charging flat franchise fees plus ongoing royalties tied to sales (typically 5-7%), declining same-store sales directly reduce your profitability but not their upfront revenue. This creates a misaligned incentive.
- Evaluate renewal terms: Review the renewal clause in the FDD. If same-store sales are declining across the system, franchisors sometimes impose renewal conditions, reduce territory rights, or increase royalty rates at renewal (often after 5 or 10 years). Negative same-store sales trends may signal tougher renewal negotiations ahead.
Practical Due Diligence Steps
- Request Item 19 from the franchisor in writing and review it before any calls with existing franchisees. Identify the data collection methodology and sample size.
- Call at least 10-15 franchisees of varying ages (some in their first year, others in years 5-10). Ask directly: "What was your revenue last year versus the year before?" Cross-reference their answers against Item 19 claims.
- Ask the franchisor's development director: "What percentage of your franchisees achieve positive same-store sales?" If they avoid the question or cite a figure significantly lower than 50%, same-store sales growth is not a system strength.
- Compare same-store sales across franchise systems in the same industry. If competitors report 4-6% average comps and your target franchisor reports 1-2%, the brand or operational model may have structural weaknesses.
- Request renewal rate data. If same-store sales are declining, fewer franchisees will renew at higher royalty rates or reduced territories.
Common Questions
- If same-store sales are negative, does that mean I shouldn't buy this franchise? Not automatically, but it requires deeper investigation. Negative comps might reflect temporary market conditions, a recent business model pivot, or inadequate marketing support from the franchisor. However, if negative same-store sales persist year after year, the franchisor's obligations to support franchisees are not delivering results, and your chances of profitability decline significantly.
- Why would a franchisor hide poor same-store sales data? Item 19 disclosures are not always audited by third parties, and franchisors can exclude units (citing closures, relocations, or data collection issues) to present better numbers. Some franchisors also delay Item 19 reporting or update it infrequently. Always request the most recent data and compare it to Item 19 from prior years available through the FTC's EDGAR database.
- How do same-store sales affect my franchise fee and renewal obligations? Same-store sales don't directly change what you owe upfront, but they affect long-term viability. Many FDDs include language allowing franchisors to modify royalty rates, reduce territory rights, or impose additional fees at renewal if the system underperforms. Weak same-store sales indicate higher risk of unfavorable renewal terms.
Related Concepts
- System-Wide Sales tracks total revenue across all franchisees plus