Food franchise operators are experiencing increased profitability and higher satisfaction, according to a new report released earlier this month by Franchise Business Review.
Based on a survey of more than 4,000 franchisees from 84 brands in the food sector, Franchise Business Review’s study looks at an array of franchise concepts to assess the investment opportunity, pros and cons of the sector, and the success attributes of franchisees, as well as the outlook for food franchising in 2013.
The report also lists the top 40 food franchises based on franchisee satisfaction — a list that includes Firehouse Subs, Culver’s, Auntie Anne’s, Ground Round, East Coast Wings & Grill, Simple Simon’s Pizza, Hardee’s, Bruegger’s, Papa Murphy’s, and Penn Station.
I recently had the opportunity to interview Michelle Rowan, president of Franchise Business Review (FBR). Michelle has a background in Sales in the Hospitality Industry, Sales/Customer Service in the Telecommunications Industry, and has been with FBR for the past 7 years.
Franchise Chatter (FC): You just released your annual report on food franchising where you listed your top food franchises for 2012 based on franchisee satisfaction? Who performed well in this year’s list? Did any particular category within the larger food franchising sector dominate this year’s list?
Michelle Rowan (MR): Firehouse is on top again. I can’t say I am surprised because I know from the top down their team is focused on improving and supporting the franchisees. Even where the scores are high, they come back with “how can we do even better.” That said, it’s still impressive they continue to do so well while growing at a pretty fast clip.
No particular category or food type dominated our list this year (unlike last year when everything was pizza). We see a pretty even spread of pizza, wings, burgers, and bagels this year — a little bit of everything.
FC: Which emerging food franchise concepts show promise in terms of popularity and profitability?
MR: The “better burger” space continues to grow with brands like MOOYAH, and healthy concepts — those that provide healthier fast casual options — are also increasingly popular. We see three stir fry/grill concepts on our list this year with HuHot Mongolian Grill, Genghis Grill, and The Flame Broiler.
FC: Based on your study, what are the typical investment ranges for food franchise concepts by location type?
MR: There is really a range in investment type from the non-traditional/kiosk type location, which can be started for as low as $30,000, to the large, stand-alone location, which requires $2 million or more to get started.
FC: What do franchisees consider to be the pros and cons of investing in a food franchise?
MR: Franchisees in the food space may be among the most passionate in franchising. They love the never-stop, always-changing nature of the business, they enjoy working with different types of people, and of course, they love food. Some of these same pros, however, can be cons for the wrong person — the food business requires a ton of work, a pretty big investment, and the ability to manage lots of workers with diverse abilities. It’s also very competitive.
FC: What does your study reveal about the profitability of food franchises in the aggregate this past year?
MR: Average profitability among the companies we surveyed is up almost 6% compared with last year, and among the Top 40 companies on the list, it’s 15% higher than the rest of the food sector. The franchisors we spoke with are taking a much closer look at unit-level economics than they have in the past. They’re looking for ways to reduce costs at the franchisee level in order to increase profitability because they know this leads to higher satisfaction and better overall results.
FC: To what do you attribute the marked improvement in overall satisfaction among food franchisees over the past couple of years?
MR: As I mentioned earlier, I think satisfaction is up because franchisors are more focused on franchisee profitability and helping to reduce lease costs, food costs, etc., while giving franchisees the tools they need to reduce expenses and focus on the bottom line.
FC: What is the business outlook for the food sector as a whole in the coming year?
MR: The food business continues to improve with the rest of the economy — in fact, some experts say it’s improving even better than the rest of the economy. We quote the National Restaurant Association in our report, which predicts that total restaurant industry sales will reach a record high of $632 billion in 2012 (a 3.5% increase over 2011). All of the franchisors we spoke with for our report said they’ve seen improvements at both the unit level and in franchise sales over the past year.
FC: Has the lending environment for food franchises improved?
MR: I’d say yes, it’s improved, but it still has a long way to go. Many prospective franchisees still need to jump through a lot of hoops (and sometimes dozens of lenders) before they secure the financing they need to open a franchise — especially for a larger, full-service concept. Things are still extremely tight in the financial markets as compared to pre-2008.
That said, franchisors are doing a lot more to help with the lending process. They have full-time people on their staffs who are focused on helping prospective franchisees navigate the SBA, banks, and other lenders, and they’re even guaranteeing loans themselves.
FC: Can you describe your methodology for ranking the top food franchises of 2012?
MR: To compile the data for our report, we surveyed nearly 4,000 franchisees from the food sector, representing 84 brands and 22,516 franchised businesses. We do not charge companies for our base survey or awards.
When we research a franchise company, we contact every franchisee via phone or email and invite them to take part in our independent survey. We average well over 50% participation, and in many cases, survey participation will be as high as 70, 80, or even 90%.
Franchisees answer 37 benchmark questions ranking their franchise system in the areas of financial opportunity, training and support, leadership, operations and product development, core values (e.g., honesty and integrity of franchisor), general satisfaction, and the franchisee community. We also ask franchisees about their market area, demographics, business lifestyle, overall enjoyment running their franchise, and role in the franchisee community. From this data, we identify our list of food franchises with above average satisfaction.
FC: Any words of advice for prospective franchisees who are looking into food franchising?
MR: There are great opportunities with new brands and well established brands — do your research before jumping in. Beyond the training and support and financial opportunity — how easily can you connect with the corporate team (at headquarters and in the field) when you need help? How easy do they make it for you to connect with other franchisees in the system?
The power of franchising is connecting with other business owners that have been where you are looking to go. Learn from their mistakes and successes to grow your business.
FC: Is there anything else you wish to share with readers of Franchise Chatter?
MR: In addition to our food report, we have a ton of additional information and research for prospective franchisees on our website www.FranchiseBusinessReview.