Food Franchise Industry Reports:
With a fraction of food franchise systems represented by previous food franchise industry reports, this report takes a brief look at five more top food industry segments in the world of franchising.
Like many other industries, bakery franchises have seen rising commodity costs that threaten growth. Despite the rising prices of baking ingredients, retail bakeries have remained resilient in current economic conditions.
The baked goods industry encompasses a wide range of products such as bread, bagels, cakes, pretzels, cookies, donuts and scones. According to the American Society of Baking, the United States commercial baking industry employs nearly 330,000 people and brings in annual revenue of close to $100 billion. Well known bakery franchises include Auntie Anne’s, Cinnabon and Corner Bakery Cafe.
In addition, because coffee is a natural companion to baked products, a number of bakery franchises offer coffee as part of their product range. For example, Dunkin’ Donuts, a top franchise in the coffee franchise industry, is also a top franchise in the bakery franchise industry. Sandwiches and soups are also common menu items at many bakeries.
A key factor contributing to the baking industry’s growth is the long-growing consumer demand for convenient, ready-to-eat foods. This demand is fueled by busier consumer lifestyles and less time for food preparation. Baking franchises expand alongside growing desires for convenient meals among time-crunched Americans.
Trends in the baking industry are largely related to consumer lifestyles and eating trends. Growing health awareness allows bakeries to incorporate even more nutritious food production and fortified baked products into stores. Some bakery franchises offer miniature versions of popular baked products as well, to help satisfy the consumer demand for healthier, low-carb products.
Bakeries are also responding to America's rising interest in ethnic cuisines and flavors. Latin American and Asian baking styles are becoming increasingly popular, reflecting increasing Hispanic and Asian populations in the U.S.
Convenience Store Franchises
From December 2010 to December 2011, the U.S. convenience store industry registered an increase of 1.2 percent in the number of stores, raising the total number to over 148,000. These stores combined earn over $680 billion in annual sales.1 Well known convenience store franchises include ampm Mini Market, 7 Eleven and Circle K.
Convenience stores remain a popular choice for consumers seeking a timesaving location for food services, and very often this overlaps with refueling at gasoline stations. According to the National Association of Convenience Stores (NACS), “while convenience stores have offered fresh, prepared foods for years, it is only over the last decade that the trend has accelerated. The result is that convenience stores have continued to evolve from gas stations that happen to sell food to restaurants that happen to sell gas.”
Food service at convenience stores often includes freshly prepared food, confectionary, hot and cold beverages plus beer and other alcoholic products. Three of the top merchandise categories of convenience retailing are food-related:
- Beer Sales: U.S. convenience store industry sales of over 2 billion gallons of beer annually, or around one-third of all beer purchases in the entire country
- Candy Sales: high-impulse purchases with 49 percent of convenience store shoppers reporting unplanned purchases, according to global research firm Envirosell
- Coffee Sales: primary hot beverage choice among convenience store customers, even exceeding gasoline refueling, with consumers stopping in to buy coffee even more than gasoline to refuel their tank, according to the National Coffee Association
Food Gifting Franchises
A recently arrived segment in the food industry is franchises offering alternatives to traditional flower and candy gifts. Franchises in this segment include Candy Bouquet International and Edible Arrangements.
This industry segment is part of a market upswing with consumer food gifting sales expected to reach over $11 billion in 2012—a 2.5 percent increase over 2011.3
Consumer interest in specialty foods—particularly organic, natural and gourmet items—is a major factor in this growth according to market analysts. Additionally, healthy-eating themed food baskets are also gaining popularity as consumers become even more interested in healthier lifestyle decisions.
Primary target markets for these franchises are individuals, families and corporate gift givers. Demand is often greater during certain seasons, yet consistent year-round. Numerous potential occasions for food gifting include sympathy and “get well soon” situations, thank you gifting, anniversaries, promotions, weddings, and housewarmings. Traditional, cultural, and family-focused holidays and celebrations of all sorts are also excellent opportunities for this industry to serve consumers looking for creative gift ideas.
As discussed in the ice cream and frozen yogurt franchise industry report, the personalization of consumer experiences has become increasingly important to franchisors. Matt Hudak, U.S. country analyst at Euromonitor International, suggests that while the food gifting industry segment is experiencing growth, untapped opportunity exists and one way to gain access to the full potential of the industry is through greater customization. If franchises “can give consumers the level of personalization and ease that they want when giving gifts, the food gifting trend could be set to stay for the long-term,” he says. 4
Juice and Smoothie Franchises
The juice and smoothie industry has expanded consistently over the past five decades despite decreased disposable income in recent years. The main factor in the industry’s overall growth is a prevailing consumer desire to live a better life.
According to the Juice and Smoothie Association (JASA), smoothies first became popular in the United States in the 1960s. Specialized juice and smoothie bars became linked with the sports and fitness trends of the 1980s. Throughout the 1990s and early 2000s, the industry moved from being a niche market to a mainstream fixture that consumers rely upon for healthy meal alternatives.5
The market for this industry often experiences seasonal fluctuations in most areas with the highest concentration of smoothie businesses located in the Southeast and West regions.6 Franchises in this industry offer products that satisfy meal replacement and accompaniment demands as well as dessert offerings.
Smoothie King, Jamba Juice and Planet Smoothie are among the top franchise brands with additional industry presence in a variety of locations. According to FranData, there are more than 70 franchise brands with smoothies on their menu, and of those brands not even half (about 30 of the 70) have smoothies as the primary product. In addition, many fast food chains as well as ice cream and frozen yogurt shops have added juice drinks and smoothies to menus.
Future growth in this industry will involve cultivating new markets. Jamba Juice recently introduced new self-service venues called “JambaGo” which allows easier access to the company’s product, with a main target market of elementary and secondary schools. This shift supports bans on nutritionally bankrupt food offerings made in several states with legislation becoming even more focused on healthy food alternatives in schools.
Vending Machine Franchises
The vending machine operators industry is in the midst of gradual growth following a steep decline during the recession. Analysts expect annual revenue for the industry to reach around $7 billion factoring in estimated growth of just below one percent for 2012.7 Fresh Healthy Vending and U-Turn are among the franchises in the industry.
Food vending machines offer a variety of goods beyond just typical soft drinks and snacks. Here are some food items that are already being sold through vending machines:
- Coffee & Hot Beverages
- Pastries & Desserts
- Fresh Fruit & Vegetables
- Dietary Supplements
Operating a vending machine, or a network of vending machines, has become one of the most popular business ventures because of accessibility and continual demand in an on-the-go society. The exact cost of doing business in the vending machine industry depends on the type and quantity of machine(s) in use. Vending machine businesses are most profitable when franchisees actively maintain and develop their presence in a specific location, managing each machine and its product offerings with an aim to build an even stronger loyal customer base in the area.
One specific consideration when researching options for a vending machine business operation is whether to invest in a franchise system or to invest in a business opportunity. While they are similar, each mode of business involves different guidelines and long term engagement terms. Many opportunities in this area are business opportunities not franchises. Investors must fully research their options to make an informed decision.
Important Note: The provisions and fees illustrated in this report are only the most common and not a complete listing. Please review the Franchise Disclosure Document (FDD) for all provisions and fees related to investing in a specific franchise.
|FDD Profiles for Sample Additional Types of Food Franchises
Corner Bakery Cafe
Fresh Healthy Vending
When many prospective franchisees first consider opening a franchise, their main concern is the financial aspect. There are several factors however that must be thoroughly considered before beginning the franchise opening process. Here is a brief look at a couple of main financial considerations.
The range of investment between franchises can be large due to variations in business systems and execution requirements. The following charts demonstrate this by comparing initial costs associated with opening one of the 10 sample franchises presented.
Initial costs associated with opening a franchise include the franchise fee, training expenses (such as travel and living expenses, not the actual training courses), grand opening marketing costs, and more. One major variable in the initial franchise investment is the cost of real estate. Some franchisors may not include land or real estate costs in estimates because of the price variation between locations and whether their franchise system requires a new rather than leased building. Another major variable in the graph below is the variety of industries represented by the 10 listed franchise samples. Different franchise industries often entail different requirements.
Estimated Initial Investment Ranges for Sample Additional Types of Food Franchises
A significant cost within the initial investment is the franchise fee. This part of the overall initial investment grants the franchisee the right to use the franchisor’s trademarks, service marks and other branding. It also gives the franchisee access to the franchisor’s business system, including training opportunities.
The length of the initial franchise agreement term for the 10 sample franchises range from five to 20 years. Franchise term length is dependent upon not only the franchise system, but whether a franchisee is seeking a traditional or non-traditional location. Some franchise term lengths also depend on franchisee lease terms.
Throughout the length of the agreement there will be costs for being a part of the franchisor’s business system. These costs include items such as royalty fees, charges for technical support and marketing costs. The most common is the royalty fee and below is a look at royalty rates for each of the sample franchises. As illustrated, there are many ways to assess this fee, and some franchises choose not to assess a royalty.
Royalties for Sample Additional Types of Food Franchises
In addition to the regularly assessed fees, other fees are charged on an “as needed” basis such as audit fees or costs for additional training. All prospective franchisees should do their research and carefully review a franchisor’s FDD for more detailed information on all systems, procedures and costs involved before investing.
4 Indulgent and Personalized Packaging is the Key to Food Gifting Success says Analyst, http://www.bakeryandsnacks.com/Processing-Packaging/Indulgent-and-personalized-packaging-is-key-to-food-gifting-success-says-analyst