UPS Store franchise case study

In Brief:

      • The UPS Store is the world’s largest delivery franchise in the world with over 5,000 locations.
      • The company was founded by a young, Seattle entrepreneur in 1907 with a $100 loan.
      • UPS rapidly expanded by creating one of the largest airlines in the world, UPS Airlines, and through various technological innovations.
      • Franchisees benefit from ongoing corporate support, strong brand recognition, a positive reputation, access to advanced technology, and enticing opportunities for veterans.
      • The UPS Store currently operates in the United States, Canada, and Puerto Rico, but plans to expand internationally within the next few years.

Financial Summary

    • Initial Franchise Fee: $29,950
    • Startup Costs: $161,657 – $470,031
    • Royalty Fees: 5.0%
    • Average Revenue: $494,418

There are only a handful of mail services that consumers around the world trust to deliver their packages. While thoughts of Amazon, FedEx, and USPS come to mind, the UPS Store franchise remains the world’s largest franchisor of shipping, postal, and printing services. As a subsidiary of the United Parcel Service (UPS), the UPS Store operates over 5,000 franchise outlets across the United States, Puerto Rico, and Canada.

How big is UPS. The delivery behemoth grossed over $73B in revenue for the fiscal year 2019. In 2018, UPS handled an estimated 20.7 million packages every day and 5.2 billion total. By comparison, FedEx handled an estimated 15 million packages per day and 4.7 billion total. So how did UPS become the largest package delivery company in the world? Its origins may surprise you.

The Early Years: A Package Revolution for the New Consumer

Quick Question. How did people communicate before global communications, the internet, and social media? While the numbers are dwindling, there is still a small minority of people alive that remember the days of sending telegrams. In 1907, a 19 year-old James E. Casey established the Seattle based American Messenger Company with a $100 loan.

Quite simply, Casey managed a team of runners who would deliver messages and packages on foot across the city. Although the company faced stiff competition from dozens of other messenger services, it began to find success due to its strict adherence to customer service, reliability, convenience, and low rates – the same principals that UPS continues to stand by to this day!

When United States Parcel Post System (today’s USPS) was founded six years later, Casey’s company delivered all Seattle special packages for the new company. As the years progressed and technology began to modernize, American Messenger Company utilized motorcycles and trucks to deliver multiple packages at the same time rather than relying on runners to deliver one package at a time. The company rebranded to Merchants Parcel Delivery in 1916 and landed on the color brown for its logo. In 1922, Now Seattle’s largest delivery service, Merchants Parcel Delivery expanded to Oakland and adopted the name United Parcel Service.

UPS Archives

Eastward Expansion by Land and Air

By 1927, UPS operated outlets in every major city on the West Coast. The mandate was clear –  it was time to dominate the East Coast as well. In 1930, UPS expanded to New York City and Newark, New Jersey. While many companies faltered during World War 2, UPS continued to expand across the country – even as the government recommended the public carry their packages home on foot due to a rubber shortage.

When UPS secured common carrier rights in 1952, this meant the delivery conglomerate could deliver mail between customers, both private and commercial. UPS continued to apply for further operating authority within the United State, winning many legal battles in an attempt to expand its dominion. In 1953, UPS resurrected its fledgling air-delivery service known as Blue Label Air. The two-day service to major cities across the nation delivered to every state by 1978.

The Advent of UPS Next Day Air and International Expansion

When the federal government deregulated the airline industry in the 1980s, UPS established its own airline fleet to meet the growing demand of its customer base. UPS Next Day Air delivered to 48 states by 1985 and entered the European delivery business the same year. The now global company received clearance from the Federal Aviation Administration in 1988 to launch its own airline – UPS Airlines. The new airline became the fastest growing in aviation history. UPS Airlines is now one of the 10 largest airlines in the United States.

Although UPS officially delivered across borders in 1975 when it offered services to Toronto, its international empire really took off in the following decade. As its air empire rapidly expanded, UPS was able to reach distant cities within a day. Today, UPS delivers packages to 185 countries, reaching over 4 billion people.

UPS airplane landing

UPS Becomes a Leader in Technological Innovation

By the time of the 1990s, UPS delivered almost 12 million packages every day. UPS knew it needed to innovate in order to keep up with demand. The handheld Delivery Information Acquisition Device (DIAD) carried by drivers takes a picture of a recipient’s signature to keep customers updated about the location of their package. DIAD also allows drivers to track and provide real time information of deliveries that are vital to maintain operations.

How did UPS revolutionize the ability to track packages? The first of its kind, UPSnet was able to track over 820,000 packages each day from 1,300 distribution sites in 46 countries using a complex network of communication lines and satellites.  In 1994, launched as a more streamlined way for customers to track packages and can now track all ground packages.

In 2001, UPS acquired Mail Boxes Etc., the world’s largest franchisor of retail shipping, postal, and business service centers. The UPS store launched in 2003 when approximately 3,000 stores were rebranded and 500 franchise locations were sold. There are now over 5,000 UPS Store franchise locations across North America with plans to expand even further.

In the years after UPS launched its franchise locations, the company also acquired delivery service China Mainland in order to gain access to the Chinese market and also acquired Challenge Air, making UPS the largest air cargo carrier in Latin America. From its inception as a lowly messenger service in 1907, to a multi-billion dollar conglomerate only a few decades later, UPS still adheres to its core principles: customer service, reliability, and reputation. You can learn more about the history of UPS here.

What Can UPS Do for Franchisees?

1. Ongoing Corporate Support

Entrepreneurs who own a UPS franchise enjoy consistent and comprehensive support from the courier. From extensive training programs to advertising and marketing support assistance with everything from choosing a location to negotiating a lease, UPS certainly delivers when it comes to getting franchisees the support they need to succeed.

2. Strong Brand Recognition

The UPS Store, in addition to being part of the global UPS brand, has been in operation for years and boasts over 5,000 franchise locations worldwide, giving it strong brand recognition and ensuring a robust customer base for franchisees.

3. Positive Reputation

Entrepreneur ranked the UPS Store #5 on the 2020 edition of its Franchise 500 list, indicating that the brand has a very positive reputation in the franchising industry. The UPS Store franchise is well-known to customers across the United States and stands as one of the top brands in the printing, postal, communications, and business services categories. 

4. Access to Advanced Technology

The UPS Store franchise also utilizes cutting-edge, innovative digital information systems, making it an ideal fit for entrepreneurs who want to work with the latest technology on the market. This technology is reportedly backed by a more than $1 billion annual investment and allows the company to offer tracking and distribution capabilities at the forefront of the market. 

5. Enticing Opportunity for Veterans

Owning a UPS franchise also offers an attractive opportunity for veterans, who enter franchising in disproportionate numbers. Specifically, UPS partners with the VetFran program which connects veterans with franchise business opportunities and offers qualifying veterans $10,000 off their franchise fee. In 2018, Entrepreneur also ranked the UPS Store as the tenth-best franchise for veterans. 

FDD Summary

Initial Franchise Fee: $29,950

Per Item 5 of the UPS Store FDD, the initial franchise fee is $29,950. However, this cost is reduced to $19,950 for the opening of a franchisee’s second or subsequent location. Notably, this discount is valid for franchisees with concurrent ownership and is not granted based on former franchise unit ownership.

Monthly Royalty Fees: 5.0%

The royalty fee is payable via EFT monthly on the 20th day of the calendar month or another interval established between the franchisee and the franchisor. This royalty fee includes all gross sales plus gross commissions, minus allowable exclusions.

Estimated Initial Investment Costs: $161,657 – $470,031

Name of Fee Low High
Initial Franchise Fee $29,950 $29,950
Real Estate and Building (3 months rent) $32,245 $166,252
Signs, Seating, Equipment, and Decor $6,881 $12,455
Opening Inventory $6,180 $9,155
Miscellaneous Opening Expenses N/A N/A
Travel and Living Expenses while training $3,000 $4,000
Additional Funds (3 months) $40,000 $70,000
Total $161,657 $470,031

Average Revenue Per Location: $494,418

According to the UPS Store’s FDD, the average adjusted gross sales for all units in 2018 was $494,418. This figure represents an increase from an average of $475,790 for 2017 and $461,890 in 2016.

It’s important to note that this figure is only a statistical average, never a guarantee of projected revenue for franchisees or even an estimate. Gross sales can vary greatly based on factors such as location and the amount of time that the UPS Store franchise unit has existed.

Unboxing The UPS Store Franchise Model

The UPS Store franchise model has served as a viable alternative to the U.S. Post Office for years, offering customers a convenient location for their packaging and shipping needs.

The brand continues to expand globally, with the milestone 5,000th store opening in 2017. The continued growth of eCommerce worldwide is likely to be a positive development for the brand, as consumers have the option of the UPS Store as a location to both pick-up and drop-off packages sent via online commerce.

Entrenched in the minds of customers worldwide and benefitting from the growing popularity of eCommerce, the UPS Store franchise model can certainly deliver for entrepreneurs in 2020 and well beyond.

For more information on The UPS Store, check out their website.

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