This article originally appeared in the June 2015 edition of Business Review USA
Franchises are a crucial segment of the American economy; many jobs created after the Great Recession are tied to franchises. In additoina, American franchises are still the most prominent and popular in the world—particularly food franchises. This sector also accounts for a substantial, if not most, of the small-businesses in the nation.
It is because of their volume and ubiquity that so much happens in the sector at any given time, from new franchising niches to new finance methods. In this article, Business Review USA brings you a survey of the most important trends in franchising today.
10. Increased technology in franchising
Technology has made business easier for everyone. Certainly the most significant concept taking root with franchises is the ubiquity of software services hosted in cloud, or simply, software that’s not installed on a computer, but instead resides on the web. Likely you've heard of cloud computing and Saas (software as a service.) The aim is to take all the software programs that are usually installed on a company's individual computers and move them to the web. There, they are hosted in a single secured environment and accessible from any Internet-connected device, be it a computer, phone, or tablet.
Since franchises command so much volume by virtue of their size, even small franchises need sophisticated systems to manage the complexity of their trade. Software solutions including Nextstep Systems, VST Inc., Hello Scheduling, ONOSYS, Stellar Restaurant Solutions, Mindshare Technologies and Venuelabs have filled some but not all needs.
9. Increasing minorities and women in franchising
Franchising mitigates traditional obstacles to minorities and women such as lack of business experience and capital. According to yourfranchisesuccess.com, “Franchisors provide managerial training and assistance on an on-going basis and, in some cases, arrange for property leases, provide equipment financing and sale-leaseback programs, and assist franchisees in obtaining financing.”
The growth in population of minorities is a factor pushing this trend. Quoted in CNBC, Rohit Aurora, CEO of Biz2Credit, states, “Minorities are going to become the majority in the next five to 10 years in terms of small businesses. They will keep contributing in starting, buying and growing businesses." For many of these coming entrepreneurs, franchises will seem like the ideal small-business opportunity. It’s not just their growth in population, however. Baby Boomers are retiring and handing off their franchises.
8. Internationalization of franchises
Overseas markets are still ravenous for American products and services. Franchise experts believe that many countries are willing to pay large amounts for the opportunity to use a Western trademark and the training and knowledge that come with the package. There are well over 400 franchises operating internationally, according to the International Franchise Association.
Another cause pushing this trend is the Franchise Trade Commission, a program under the U.S. Commercial Service, which facilitates business deals for American companies abroad. Entrepreneur reports that:
“An early franchise trade mission in 2011 saw 15 companies, including Applebee’s and RadioShack, travel to Mumbai, Hyderabad and New Delhi to meet with potential partners in the Indian market. Since then, the Commercial Service, which has staff based in most U.S. embassies around the world, and its partners have facilitated missions to China and to countries in Southeast Asia, Latin America, the Middle East and sub-Saharan Africa. This year it plans on returning to India and Southeast Asia.”
7. Franchising in “faster than fast” food
Just when we thought it was impossible to get food to a consumer faster, it got faster with food trucks. According to QSR Magazine, 5 of the top 20 food truck franchises are Skillet, Chef Shack, Food Shark, Coolhaus and Spencer on the Go! The markets for food trucks include business parks, transit areas, tourist spots, sporting, cultural and other entertainment events, tertiary education institutions and even wedding receptions, according to Franchise Finder.
The startup capital in food trucks ranges from $50,000 to $250,000. According to mobile-cuisine.com, “If you go [all] out, buy a new food truck with all new high end equipment and technology, you’re looking at about $250,000 in operating capital and start-up costs.If you go the other route and get extremely frugal and able to do some of the build out work yourself, you can probably get away with $50,000 to $75,000.” At Entrepreneur.com, Food Truck Franchise Group LLC states that a total investment of $99,000 to $150,000 will get you started with them.
6. Franchisors buying litigation insurance
There are economic and legal reasons why this is a current trend in franchising. According to Bloomberg:
“As a rule, franchise lawsuits tend to follow economic cycles, says John Gordon, principal at Pacific Management Consulting Group, which focuses on the restaurant industry. In a bad economy, franchisers may put the squeeze on franchisees, leading to lawsuits; or a store owner whose business sinks may seek to blame the corporate chain. As the economy improves, protection against such lawsuits may be less important.”
[Related: How the kill switch law affects businesses]
While the worst of the 2008 Great Recession is behind us, the economy has still not recovered its pre-Recession strength. Legally, recent decisions by the National Labor Relations Board have made it easier to sue franchisers. In a case involving McDonald’s, “The top prosecutor for the federal labor board has rejected McDonald’s claim that it’s not the boss of the workers in its franchised stores,” according to Bloomberg.
5. Crowdfunding in franchising
This trend is born from the Great Recession, which cut off equity lines of credit as a traditional source of capital for franchisees. Investment crowdfunding expands the class of individual likely to invest in a small business. According to Mark Mohler in his article at The Crowd Café:
“Facebook shows that Americans follow their favorite brands—millions of cumulative likes and shares—and crowdfunding can enable them to invest in them too. Fans can become actual co-owners. And of course, it’s not just the brand they’ll be investing in, but also the individual behind it.”
[Related: Top 10 tips for successful crowdfunding]
Federal legislation has given this kind of crowdfunding a boost. The JOBS Act, signed in 2012, included a provision that makes it legal for small businesses to solicit crowd-based investments up to $1 million.
4. Franchising in fitness gyms
Fitness gyms are another franchise concept that Baby Boomers are fueling. This generation understands something fundamental about fitness that escaped their parents: exercise must be done on a regular basis to work.
As a result, gyms work because consumers are keeping their memberships. Also, since self-care is important to Baby Boomers, franchises that provide one-on-one training are particularly successful with this demographic.
With their parents well-cared for and their bodies in their best shape ever, the last Baby Boomer priority is looking good. They spend a lot of money in medical spas, salons, cosmetic stores, massage studios and tanning salons. The still-growing healthy living and aging industry generates about $480 billion annually.
3. Franchising in home health care
The spending power of Baby Boomers has always been touted. At their current age—they are between 51 and 69—their needs revolve around three themes: caring for their parents, fitness and looking beautiful. Successful franchising opportunities fulfill these needs.
To care for their parents, they are turning to home health care franchises like Home Health Mates. Baby Boomers are living more active lifestyles. This is why they’re outsourcing care for their parents to third-parties. Home health care franchises are not tied to the economy. Consumers can wait to buy a new car, but they can’t put off care for their loved ones.
2. Multi-unit franchisees
Traditionally, franchisors have wanted to work with franchisees that promised to concentrate on their brand and their brand only. This is no longer the case. Today franchisors are more interested in experienced operators. Quoting their president Michelle Rowan, Franchise Business Review writes:
"Multi-unit ownership’s growing appeal is the result of two factors. Franchisees enter into it due to the potential for increased profitability. Franchisors are encouraging it because well-financed and experienced franchisees can expedite growth, while keeping the number of franchisees they work with manageable.”
The median annual pre-tax income of the multi-unit franchisees Franchise Business Review surveyed was $88,000, as 29 percent earned more than $150K and 16 percent earned over $250K. By contrast, 11 percent of single-unit franchise owners earn more than $150,000 and only 4 percent earn over $250,000.”
1. Franchising in fast casual restaurants
Fast casual restaurants have hit a sweet spot with consumers. Diners like customizing their meals as well as the made-to-order signature dishes that these restaurants offer. Fastcasual.com reports high demand in the sector:
“For the second year in a row, the fast casual sector was the growth engine of the U.S. restaurant industry, according to Technomic’s Top 500 Chain Restaurant Report. It found that fast casuals increased their collective annual sales by 12.8 percent to $30 billion in 2014, and that growth rate was nearly double the next-largest increase from any other restaurant segment.”
Fastcasual.com also reports that:
“Jersey Mike's Subs increased its sales 30 percent to $523 million in 2014, ranking just ahead of Dickey's Barbecue Pit, which recorded a 29-percent gain and $426 million annual sales. Even off a 10-figure base, Chipotle Mexican Grill increased annual sales 28 percent to $4.05 billion.”
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