It’s happening again…
Every year about this time anyone that had a great year in their job or business starts calling me and sending emails asking for a time to talk about what is the next big thing so that they can have a franchise fee as a business expense before the end of the calendar year.
There are three primary categories that most franchises fit into:
- Restaurants
- Retail
- Service
Across those primary categories we are seeing solid growth from owner operator models all the way up to portfolio growth concepts that appeal to large investors. Both Business to Consumer and Business to Business concepts are faring well as the economy is currently healthy enough to support both soundly. Concepts that are more trend driven and those that depend on disposable income are holding their own in many cases at the moment. Part of this robust growth is being driven by the abundance of funding options, if you know where to find them.
All of that said, I should remind you that economies go up and down over time. Social and purchasing trends also come and go. You will want to remember that as your franchise agreement will cover countless ups and downs in the economy and if tied to a particular trend then you will want to have a clear picture of what will determine when to get into that trend and when to get out (sell your business).
Restaurants are always a hotly pursued category. They are hot, seem fun and exciting and are easy for you and your friends to understand the product. We drive past countless restaurants and, inevitably, frequent a number of them.
Remember that restaurants by nature tend to be more expensive to open per dollar in potential profit than other categories. The trade-off may be worth it if you get into a great concept and have a longer view on when you want to have multiple units open and generating mature revenues.
As we saw with Five Guys entering the burger category when the general consensus was that it was as full as it could get, there is always a new angle. Old brands sometimes fall out of favor and new brands can take those opportunities to step in. New trends pop up and give us a reason to try a new style of food or a healthy option.
Within the food category we are seeing a lot of activity in the pizza category, healthy food, ethnic food options and old local brands reviving and franchising.
Pizza is an interesting story. When we look back at Five Guys, they came to market against the old established fast food brands. They were the only brand taking on giants. After Five Guys took a rather substantial lead in sales of units there were a number of competitors that appeared to fill in some of the gaps.
Today we see the pizza category going through a very similar transition except all of the competitors seem to have showed up at once! There is a high likelihood that the pizza category will have winners and losers. As this plays out there will probably be some consolidation of these new brands. Where that happens the operators of the brand being purchased will have to decide if they want to continue on and incur the cost of rebranding.
Retail is another interesting category, historically a substantial conduit for consumers to get manufactured goods. Today we see retail taking on a massive competitor in online sellers from small companies to Amazon and eBay. It is not uncommon to see shoppers in big box stores with their cell phones out price checking the item they want to buy online to see if they buy it now in the store or wait a day or two to get a better price.
If you pursue a retail operation where you sell a product be sure that you don’t have substantial online competition or have targeted a brand that shoppers come to for expertise or ongoing support. That relationship and need for local service could be your key to success. In some cases the benefit to the customer is some form of relatively proprietary product that must be seen or demonstrated in person for the buyer to make a purchasing decision.
Service, Service, Service!
Now to my favorite category for a number of reasons, Service businesses. Nobody has ever gotten a massage, facial, haircut, home repair, car repair, clothes dry cleaned or countless other services from Amazon. They never will.
Some of these services are the polar opposite of trendy or economy driven. Does hair grow in a down economy? Do you need your car to work when money is a little tight? Are you able to dry clean your own clothes?
Service brands have the advantage of having to be provided in person and wherever the service needs to be provided. Some have a retail location for the convenience of their customers (dry cleaners, hair salons) while others service their clients at their home or place of business (office/house cleaners, home repair).
Those service concepts that don’t require a large or fancy retail location will likely result in a lower start up can operating cost. Having lowered those costs by eliminating expensive retail space you may also find that those service concepts have a higher profit percentage.
In service brands you may find both great business models and a cash flow that will be more level over economic trends.
Regardless of the category you select there will be more options than you can consider in a reasonable time period so the key to your success will be finding the right franchise to fit your skills, drive, desire and goals. Keep economic up sand downs in mind as well as trends that might impact the business in the coming years.
What will your success story be? Let’s go find it.
George Knauf is a highly sought after, trusted advisor to many companies; Public, Independent and Franchised, of all sizes and in many markets. His 20 plus years of experience in both start-up and mature business operations makes him uniquely qualified to advise individuals that have dreamed of going into business for themselves in order to gain more control, independence, time flexibility and to be able to earn in proportion to their real contribution. Contact the Franchising USA Expert George’s Hotline 703-424-2980.