People Are Eating up Food Franchises!

Food Franchising has always been front and center for the entire franchise industry. After all, the industry was essentially brought main stream by some of our favorite hamburger and chicken food purveyors in the 1950’s.  The recent movie, The Founder, helped retell the story of how the franchise industry was brought to the general public by an excitable Ray Kroc who discovered the McDonald’s brothers invention.  Chicken, hot dogs, burgers….more burgers and now sushi seem to have a never ending assembly line of new concepts and innovative food service franchise brands always coming into the franchise market.  The food service segment of franchising has taken it’s lumps over the recent past and in 2008 and 2009, the food service industry was as close to going extinct as the market segment ever has been.  Now, in 2017, The Entrepreneur Franchise 500 has McDonald’s at #2, Dunkin Donuts at #3, Jimmy John’s at #5, a reinvented Dairy Queen at #6 and a surging Wingstop at #8.  The Food Service franchise market is as alive and well today than it has ever been.

How is this all possible when you hear again and again that restaurants are so high risk, the food service business has no profit margin and other negative slants towards food service businesses?  Are food service entrepreneurs defying logic with businesses that work around traditional issues in managing a profitable food service business?  Has the restaurant business changed for the better significantly in some way?  There are a variety of factors that drive the food service space and probably at the top of the list is the fact that food service has been so prominent and has more established brands than any other market segment of franchising.  This maturity has helped a wide range of franchise brands grow from large systems to very large franchise systems over the past ten years since the recession.  With mature franchise brands comes people’s willingness to look into the category, even if in some cases people do not invest in well known food service franchises, they end up investing in the market segment itself.  The pizza franchise market is a good example, brands such as Pizza Hut and Little Caesar’s have global recognition and bring people into the category who to some extent have chosen to invest in new, more innovative pizza franchise models like Blaze.

The next reason that the food service market in franchising has performed well is the shrinking profitability in food service establishments. One would think that this would work against franchising, but the opposite is true. Food supplies, inventory costs, restaurant supplies and cost of labor are all increasing faster than sales have been for the food service market segment. Franchise systems offer franchisees the benefit of purchasing power negotiating better rates with food suppliers and more marketing power for food service establishments.  The individual franchisees have the opportunity to leverage these economies of scale and “win” at the unit level. This paradox is seen to an even greater extent in the pizza segment where an increasingly large percentage of sales are being driven through online ordering platforms.  Large scale pizza franchises have the capital to invest in technology and systems that a mom and pop couldn’t afford and the growing difference in online sales supports the case for franchising.

Another area where food service franchises seem to be beating the system is in managing labor costs and operational expenses. Recently in the U.S., the labor board made their most recent attempt to take a swing at franchising by declaring that the Franchisor should be deemed a joint employer for the staff employed by all franchisees in the system in a case against McDonald’s. With the support of the IFA and a group of franchise industry professionals, the case was overturned and the concept of independent franchise ownership was successfully defended. In a franchise system, each business is independently owned and operated, through the Franchise Agreement all businesses operate under a common brand and are able to leverage the volume of business and resources available to the sum of the units in the network.  This combination of small business owners working together and as a team offers benefits to each owner and to the growth potential of the entire network.

Finally, the food service franchise market has gone through a massive overhaul since the recession in 2008.  With the rebirth of our global economy, there has been a reinvention of many mature brands and the development of new and exciting food service franchises. The Middle Spoon is a Halifax, Nova Scotia food service franchise that offers high end cocktails with fancy dessert options and recently established new ownership of a location in Sugarland, Texas. The concept is exciting, full of personality and offers the franchisee an incredible financial model.  Blaze Pizza went ahead and reinvented the pizza market with the “Subway-version” of pizza restaurants making pizza quick, easy and convenient for everyone. Sushi has been reinvigorated and re-established as a market segment with quick serve Poke Sushi offerings such as a new Atlanta franchise brand, Poke Burri.  Poke Burri offers a compact, efficient and simple operating model with incredible food quality.

Long story short, the food service franchises are back. Today’s food franchises are full of innovation, technology, excellent branding and systems that allow for scale. If there’s ever been a good time to look at becoming a Franchise Foodpreneur, that time is now.

Christopher Conner is the President of Franchise Marketing Systems and has spent the last decade in the franchise industry working with several hundred different franchise systems in management, franchise sales and franchise development work. His experience ranges across all fields of franchise expertise with a focus in franchise marketing and franchise sales but includes work in franchise strategic planning, franchise research and franchise operations consulting.    

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