What is the food industry?
The McDonalds golden arches are among the most quintessential symbols of American fast food franchising. But, did you know that many of your favorite restaurants and fast food places may be franchises, too? Bringing in hundreds of thousands of customers, Subway, Dunkin’ Donuts, and Domino’s Pizza are among some of the most popular food franchises today. But, the food franchise industry doesn’t stop at fast food.
According to an economic outlook report conducted by IHS Markit Economics in 2017, the food franchise industry is divided into three primary parts:
Full Service Restaurants
Quick Service Restaurants
There are many other franchise subdivisions within the food industry. These categories include bakeries, cafes, juice or smoothie joints, pizza restaurants, ice cream shops, and vending machine retailers. All of these subcategories fall within the top three listed above and comprise the food franchise industry.
One of the biggest franchise industries, the food franchise industry comprises almost half of all franchise establishments in America. Not to mention, this industry produces roughly 65 percent of all franchise employment jobs. Let’s take a look into the three individual sectors and where they stand in comparison to one another.
the food franchise industry comprises almost half of all franchise establishments in America.
Sit down restaurants serving up sales
Although family spending at table service restaurants continues to contribute to household spending on services, full service restaurants—wherein food is served sit down style and served directly to the customer by a waiter—comprise the smallest portion of the food franchise industry.
Nevertheless, the number of full service restaurant locations was expected to grow and experience a 6.8 percent growth in sales in 2017. As a result, this growth in sales would translate to a growth in productivity and therefore a projected 3.9 percent growth in employment.
Fast food still a top dog
Quick service restaurants are more commonly known as fast food restaurants. As predicted with full service restaurants, the fast food sector was also expected to experience a growth in employment, however, slower than in the past. The IHS report additionally predicted to see boosted wages, which hadn’t budged for years in the past. Continuing with the popular trend of the past, quick service restaurants are likely to remain the leaders of the franchise sector in overall employment growth.
The quick service sector has many of its own subdivisions according to goods being produced. Chief among these subdivisions are coffee franchises, ice cream or frozen yogurt franchises, pizza franchises, and juice or smoothie franchises. The growth in popularity of healthy, quick food options has been reflected in many of these subdivisions. For instance, franchises in the juice subdivision have seen a big jump due to the public’s lean towards healthier options.
More people dining in
Despite that the restaurant industry was anticipated to see growth, prices of restaurant food were also expected to grow, leading more people to prepare food at home. For this reason, the retail food franchise industry was expected to grow roughly 1.2 percent. Nevertheless, this rate remains lower than the other sectors of the industry. Employment in the sector was anticipated to grow about 2.7 percent.
Mergers and Acquisitions in the Industry
According to data from 2017, mergers and acquisitions within the food industry are anticipated to keep growing, increasing 86 percent between 2004 and 2016, according to AaronAllen & Associates. Specifically, there has been a large number of deals between fast food/casual dining and restaurant franchises.
One of the biggest restaurant mergers in 2017 occurred when Post Holding Inc. (maker of Honey Bunches of Oats) bought Bob Evans Farms for approximately $1.5 billion.
In September 2017, Global Franchise Group, parent of Great American Cookies, acquired Round Table Pizza, which included more than 1,500 locations and nearly $1 billion.
JAB, a German-based conglomerate that has also acquired Keurig and Peet’s Coffee & Tea, acquired Panera Bread in a $7.5 billion deal in July 2017.
In 2014, Burger King acquired Tim Hortons and built Restaurant Brands International, now a fast food empire. In February 2017, Restaurant Brands International also acquired Popeyes.
Trends for 2018: Mindful Choices
As mentioned earlier, the public is beginning to look for healthier options when it comes to food. According Innova Market Insights, two in five US and UK consumers have increased their intake of “healthy foods,” and seven in ten want to understand the ingredient list on the foods they consume. For this reason, the food franchise industry will likely continue to experience a growth in healthy food options.
“Today’s consumer displays a high level of mindfulness about well-being and the environment,” wrote Lu Ann Williams, Director of Innovation at Innova Market Insights. For this reason, “Mindful Choices” is among the top food trends.
Fast Food chains optimizing to increase sales.
Many fast food chains have begun to enhance their brand and operational systems to increase their sales. Chains like McDonald’s and Domi
no’s have researched photography, advertising, décor, among other factors in order to attract new customers and keep customers coming.
Many preexisting customers may not have noticed these changes, as restaurants have been implementing enhancements and changes gradually to avoid alienating their loyal clientele.
McDonald’s, specifically, has also taken measures to minimize their menu in order to speed up service. Large amounts of menu options slowed down the quick service that customers enjoyed with the franchise, resulting in dissatisfied customers and employees. Once the menu was cut down, McDonald’s reported positive traffic growth for the first time in five years.
Is the Industry Right for You?
The food franchise industry can be extremely successful, depending on your commitment to your business. Food franchises that come out the most successful both follow trends of the time and stay consistent with their overall brand and customer base.
Luckily, customers are always going to need food and therefore, picking a location is relatively simple. Food franchise units can be solitary, where they are the only business operating in a building. Additionally, food franchises can be located within a mall, airport, or sports stadium surrounded by other businesses. The location that you select plays a big role in determining the total initial investment, construction costs, rent costs, equipment needs, among other factors.
Another factor that a prospective franchisee must consider is the equipment purchased for their location. A large part of the costs associated with opening a food franchise includes the equipment necessary to run the business. This is absolutely essential, as the quality of equipment is a key determinant in the future quality and efficiency of your business. This can help ensure customer satisfaction. If things are running smoothly and quickly, customers will keep coming. Often, the franchisor provides their preferred vendors and brands, eliminating the need for trial and error.
The final thing to consider when opening a food franchise is the initial investment and ongoing royalty fee. This information can shift depending on the location of your franchise. The FDD, provided by the company’s franchisor, gives a relative estimate of the fees that are associated with opening a food franchise.