Franchise systems that multiply
By Daren Chalupiak
Deciding to open a business and become your own boss is a commendable occasion. Statistics show that franchises are more likely to be successful than a similar unbranded business. And as it is often said, when you buy a franchise, “you are in business for yourself, not for yourself”. That said, deciding what type of franchise to buy is the number one question asked by investors.
The traditional view of the franchise is generally considered to be fast food or quick service restaurants (QSRs). These would include burger shops, cafes, sandwich shops, etc. Full-service restaurants (FSRs) are often considered when looking at companies that serve customers at the table. This typical view is changing as more segments of the industry look to franchising as a means of growth. Here are some emerging franchise areas to consider when it comes to investing:
Fitness has exploded in recent years and continues to do so. Concepts cross borders to new markets and become global companies. Fitness has moved away from the big “super” gyms loaded with lots of equipment and classes, in favor of a more intimate group of hyper-specific workouts and programs. These exclusive fitness franchises were also able to adapt to the height of the pandemic and move to an online offering of virtual classes.
Personal services include massage, chiropractic, waxing, skin, nail and hair care, as well as injection services such as Botox, among others. These types of personal services are all well placed for franchising. Many departments can use benefit programs for payment, resulting in a more consistent and stable income stream. Many of these services also benefit from an increase in disposable income, which allows for greater growth.
health and wellbeing
Health and wellness is more focused on areas like supplements, natural foods, and a more holistic approach to life. Many of these businesses will be located in traditional brick and mortar locations, but others are using an online offering to help complete (pun intended) their presence.
Maintenance of the car
Car maintenance has increased with collision and repair services in the lead. Other areas in this segment include customization such as dyeing and detailing, as well as service concepts based on fluid changes and tire services. Usually, car wash locations can be found at gas stations. There are more independent locations opening up with attractive, smart designs and marketable names that offer more than a quick exterior wash. They will detail the interior and exterior of a customer’s car and touch up paint scratches.
Foodservice, although the mainstay of the franchise, is experiencing innovation and arguably the most change during the pandemic. Foodservice has been and continues to expand to more ethnic foods and unique specific offerings. Some of the fastest growing franchise concepts are based on Middle Eastern style food, as well as South Asian offerings. Specific regions are also seeing hypersensitivity around different concepts and ideas bringing the local specialties of the region to life, and through franchising, this allows these concepts to develop.
This growing trend is helping many brands reach new markets. Ghost kitchens bring together many different brands, all under one roof. The increase in online orders has made this easier, as a stand-alone location, brand, brick and mortar is no longer required. The franchisees of one of them could diversify their offer and increase their capacity to do business, because they now have an arsenal of brands.
Home services have been around for many years in the franchise industry, although they are generally considered to be a newer concept. Home services used to be a catch-all where many services were provided under one brand, taking a âdo-it-yourself approachâ to things. The situation is changing where companies are highly specialized and focus on a single area of ââhome care. Painting, window cleaning, pest control, and lawn and garden maintenance are all experiencing tremendous growth. This allows investors or operators to have more than one brand and multiple successful businesses that span multiple seasons. The lesser investment required to get started is attractive and makes it an important area to consider when choosing a franchise system.
The education has been creative with many different and unique concepts offered beyond traditional tutoring. These franchise systems are generally intended for children between the ages of seven and 16. Some even extend beyond this range to include adults looking for new skill sets. Common areas of interest are STEAM fields: science, technology, engineering, arts and mathematics. The education industry is also able to operate virtually, allowing little disruption to the model. Education has grown along with the desire of many parents to help their children acquire future skills that they may need that are not currently available in traditional schools.
With the potential introduction by the government of subsidized child care centers in Canada, one of the fastest ways to do this could be through franchising. The industry is already seeing an increase in the number of franchised locations and expanding into new markets.
In addition to these emerging markets, there are also several new trends on the scene.
Consolidator or developer
Several brands are more interested in signing what is called a master franchisee or a zone developer or multi-unit franchisees. These groups of franchisees, while similar, are different and before entering into a deal it is important to ensure that they understand and have an independent legal review of the deal. The main point is that the franchisee signs up for more than one location. A common range is three to 10 locations for a multiple unit owner, and for an area developer, 50 to 80 locations to be established over a prescribed period of time.
Consolidation of franchisors
Franchisors, like franchisees, also come together when more brands are owned by a single parent company, even though they appear to be stand-alone companies. This is done by industry where many auto service companies are all owned by the same parent company as well as in the restaurant industry and others.
Grouping of franchisees
When a franchisee is successful with their location, it makes sense that they want to grow. Existing franchisees buy locations to expand their operations. From an administration and system consistency perspective, having multiple locations allows the operator to achieve economies of scale.
The desire to have multi-unit franchisees takes on a different kind of person. Emerging networks hope to get as many franchisees as possible to buy their franchises, but what many brands are realizing is that having professionals operating multi-unit sites is not only more efficient and drives growth, but also allows better communication. Switching to different industries and brands is another growth opportunity for franchisees. Caution should be taken if one seeks to do so outside of franchisor brands as there may be restrictive clauses in the franchise agreement.
There are other notable trends affecting many businesses and franchising is not the only one. The pandemic has accelerated the use and development of technology to improve the business and move it forward. Online ordering, curbside pickup and delivery are now table stakes, but weren’t just a year ago.
Creative marketing and customer engagement are a major trend and a priority for many brands to understand the buying habits and patterns of their customers. Competition is fierce and the fight for customers is paramount. Franchisors will be concerned in the future with selecting the right real estate, improving operating procedures, product development, marketing and customer engagement.
Daren Chalupiak, Regional Market Leader at BMO, works with franchisees and franchisors to open and grow their business, bringing 20 years of franchise experience with exposure to many brands and industries.