For the restaurant industry, it’s clear that 2022 will be the year of virtual brands, more plant-based fare, labor-saving technology, and developing experiences. According to experts in the field, it’s also the year of the franchise.
The Entrepreneurial Spirit Unleashed
The pandemic taught us a lot about ourselves. We learned that we could face the worst and adapt, that change is a constant, and that time may be fleeting. Some lost their jobs and rekindled their passions, looking closely at the dreams they’d all but discarded.
This included the dream of becoming a restauranteur, and, for many, the route to take is via a franchised brand. Now, the franchise boom is in full swing. Let’s look at what this means to this business model and what this changing landscape means to restaurants.
The Benefits of the Franchise Model
According to a report from the International Franchise Association and Oxford Economics, when compared to nonfranchise establishments, the franchise model produces 1.8 times higher sales and 2.3 times as many jobs. Additionally, because franchises are usually locally owned and operated, they contribute to the local community through engagement, purchasing, and hiring. Franchisees also have the support and selling power of an established brand.
The Real Estate Market
Due to empty restaurant spaces brought on by a relentless pandemic, the second-generation restaurant real estate market is going strong. Nation’s Restaurant News reported that as of May 2021, 90,000 eating and drinking establishments had closed. Compared to new build-outs, these spaces can save considerable time and money.
In addition, with landlords still looking to fill spaces left vacant, deals can be found. However, competition in large cities remains fierce. Therefore, prospective lessees should analyze each site using the latest predictive analytics to determine its strengths and weaknesses and minimize risks while maximizing returns.
Restaurant Dive reported on the current top cities for franchises. These include the southern states of Florida, North Carolina, South Carolina, and Texas. In addition to nice weather, draws include reduced COVID-19 restrictions and the influx of restaurants heading to the suburbs.
According to Restaurant Dive, from 2020-2021, Texas and Florida lay top claim to the greatest franchise expansion, with California coming in third. Some of the top contenders were Papa John’s with 100 new units in Texas and Coolgreens with 50. In addition, Florida saw 57 Freddy’s open up, and 55 Epic Wings took hold in California.
Additional reasons that make Texas and Florida especially franchise friendly include their consistent population growth and no state taxes. Initial registration fees cost far less in Florida than they do in the sunshine state of California. Businesses in these two states also saw fewer pandemic restrictions, resulting in sustained sales and quicker recovery. These states also offer extensive suburban populations.
Texas and Florida have also stood behind their reputation as states that back small businesses. In 2021, Texas passed bills allowing restaurants to continue to sell alcohol-to-go, and they did not raise unemployment taxes. Some Florida counties were the first to open up outdoor seating for restaurant customers during the first few weeks of the pandemic. However, some franchisees may find fewer real estate opportunities and second-generation vacancies because of their restaurant-friendly environment.
Trending: The Fast Casual Franchise
In 2020 restaurants scurried to develop takeout, delivery, and curbside pickup, and fast casuals found it a little easier to meet this new demand, particularly when compared to fine dining. Dan Rowe, CEO of Fransmart, told Restaurant Dive that this sector is already built on a one-third model. One-third of customers order delivery and catering, another third opt for carryout, and the last third are indoor diners.
Fast casuals also attract diners looking for a healthier meal, and franchisees are attracted to fast casuals growing their brand’s digital awareness. Rowe also reported on one of their new partnerships, Brooklyn Dumpling Shop. The brand opened in 2020 and now averages about two new franchisees each month.
Of course, as the search for prime spots continues and second-generation restaurant locations start to contract, a slowdown in the fast and furious franchise market can be expected. Add to that the rising inflation and tightening interest rates, and some say a decline is almost inevitable. As we’ve learned, nothing is constant except change.