Franchising has matured since Ray Kroc opened his first McDonald’s in 1955 in Des Plaines, Illinois. First-day sales at that restaurant were $316.12. In 2008, McDonald’s annual sales topped $23.5 billion at more than 32,000 restaurants in over 100 countries – with about 80 percent of those stores owned by franchisees. Daily sales per franchised store today? You do the math!
Many other things have changed in franchising as well. In its earlier years, franchising was a place for single-unit owners, content to “buy a job,” be their own boss, and provide a modest income for themselves and their families. Today, more than half of all franchise units in the United States are run by multi-unit operators, some with hundreds of units and revenues in the tens of millions. These operators don’t work in their store making sandwiches or traveling from home to home to provide services. Instead, they manage a company, employing a professional staff of field and unit managers, while they focus on strategy and growth.
Multi-brand franchisees (those with two or more brands) are also a rising trend. These franchisees often have maxed out their territory for their first brand and must take on a second or third brand to continue to grow. Others are seeking additional brands to provide cash flow for different day parts, or to diversify their risk by creating a hedge against market cycles, changing consumer tastes, and shifts in the economy.
So what are the trends in franchising today? Where are the growth areas? And more importantly, where will they be in 3, 5, and 10 years?
1) Shifting Demographics
Major changes in the U.S. population are affecting not only who consumers are today, but also the available labor market. Franchisors and franchisees alike must adapt to this changing customer and employee base to find opportunities for growth.
- Millennials — This generation, whose numbers outstrip even those of the Baby Boomers, are coming into their own as a potent economic force as they begin their careers and raise families. This group of more than 70 million — whether as entry-level employees or as media-savvy consumers raised on the Internet – present a huge opportunity for franchisors and franchisees who can provide goods and services related to their growing needs.
- Baby Boomers — As this “forever young” generation ages, it will demand many new services: health and fitness programs; financial and retirement planning and advice; assistance with their aging parents; child care for their younger children and educational services for their college-bound children; legal and tax services; nutritional, cosmetic, and “anti-aging” products and services; and more.
- Seniors — People are living longer, more active lives today, a trend that will only accelerate as Boomers age. This will create a “booming” market for services demanded by this affluent, expanding demographic. Healthcare-related services, delivered at home or in assisted living facilities, will continue to grow. Home renovations for seniors, health and fitness programs tailored to their aging bodies, and increased acceptance and use of “cosmeceuticals” will expand in the years ahead.
- Minorities — The U.S. is well on the road to having a “New Majority” as the ranks of Hispanics, African Americans, and Asians continue to grow. From food to fashion, real estate to business services, as members of these groups continue their rise in numbers and economic clout, their needs will continue to expand as well – presenting new opportunities for franchise brands focused on serving them.
2) Growth Segments
What if could start a franchised business with the guarantee that you couldn’t fail? While there are no sure bets in life or in business, some areas are more likely to succeed than others.
- Recession-proof brands are understandably popular in any economic environment. These types of businesses include hair cutting, tax preparation, accounting, shipping and packaging, child and pet care and services, auto maintenance and repair, home repair and renovation, computer-related services, real estate, and staffing and employment. The recession that hit home in 2008 drove some operators of fast-casual restaurants to add lower-cost quick-serve and fast food brands if they could, to keep the cash flowing. Used goods including clothing, sports equipment, and electronic games also tend to do well in any economy.
- “Green” businesses, already on the rise, received a big boost in 2009 with the federal and state governments pushing for increased funding for the energy sector – an effect that will ripple for years into energy-related businesses. Energy-reduction services for both homes and the commercial sector will continue to expand. “Green” (LEED-certified) buildings, made with recycled materials and using less energy present opportunities for handyman franchises, and as the market matures more and more opportunities will appear.
- Fitness, health, and personal care. This sector, which includes gyms, fitness centers, nutrition, recreation and sports, spas, tanning centers, and “healthy” fast food, provides targeted opportunities for each of the demographic groups described above. The increase in childhood obesity has given rise to fitness centers and programs that combine fun and education for the younger set. Baby Boomers have their own set of needs in these areas, as do seniors, who both need fitness, health, and nutrition programs tailored to their age group.
No business is free from risks, but having a firm grasp of current trends – and where they are likely to go in the coming years – is a big step in the direction of long-term franchise success.