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Food Franchise Industry Report 2015: Industry Trends

A few of these trends have already made an impact on the food franchise industry, others are going to make an impact soon.

Food Trucks Find Their Place in Franchising

One could argue that food trucks are as old as ice cream trucks, but in our 2013 Food Franchise Industry Report, we noted food trucks as an “emerging” trend, especially for pizza franchises. A trend no more, franchises such as Taco Bell, Applebee’s, Jack in the Box, Johnny Rockets, Dairy Queen, and T.G.I. Friday’s are among those counting food trucks as a mobile version of their brick-and-mortar locations.

Food Truck Franchises

Enhanced technology and buy-in from experienced and talented food professionals have helped food trucks move from being a niche service to being a mature market. The economic downturn also played a role with a number of entrepreneurs taking a chance on an opportunity that didn’t have as high of a price tag as traditional methods.

Food trucks give consumers what they want: a variety of choices delivered quickly. Findings from the National Restaurant Association indicate the following:

  • 83% of consumers want quick service eateries with healthier eating options
  • 70% want a cuisine that’s not easily made at home
  • 62% want establishments that are “environmentally friendly”

The advantages extend to franchisees too. In a July 2015 editorial for Franchising USA Magazine, Christopher Conner, president of Franchise Marketing Systems, gave a number of potential benefits for prospective food truck franchise investors, including:

  • Reputation and pre-existing relationships
  • Systems and process that improve efficiency
  • Economy of scale in purchasing

A lower-cost start-up is also of benefit. Having a food truck helps the bottom line as the franchisee doesn’t have to deal with as much overhead or labor costs at start-up. The franchise itself also acts as a marketing piece as the franchisee drives from place to place. It can even create impressions while parked.

Taco Bell primarily uses its trucks as promotional tools, dispatching them to events and giving menu items away for free. “For us, we find getting out there and giving it away for free is a lot more of a powerful invitation than just getting out there and charging for it,” says Will Bortz, senior manager of public relations and sponsorships for Taco Bell Corporation.

While many traditional restaurants are looking to food trucks to expand, the reverse can be true as well. With the ability to try out different locations, some food truck franchises have been able to economically identify the best places for a permanent physical location.

Take the example of Cousins Maine Lobster.

After three years of operation and over 15 trucks across the country, co-founders Sabin Lomac and Jim Tselikis realized West Hollywood would be the right spot to open their first brick-and-mortar restaurant.

In recounting how they used food trucks to scout before setting up a permanent location, Jim said, “We want to go to the market. We want to find out what works and what doesn’t. [Having a food truck] allows you to get to a lot of events and festivals on the weekends. But it also tells you a lot about certain pockets that you couldn’t get to with a brick-and-mortar. After two or three years of doing that, we felt like we had some pretty good market research on where the best spots to start with our first brick-and-mortar.”

Another franchise that has used this "reverse" process is Maui Wowi Hawaiian.

The more than 450 operating units of the Maui Wowi franchise are almost all mobile Ka’anapali Carts – a mobile unit that allows products to be sold to people at various locations such as sporting events, festivals, and parties. But the brand’s popularity now has the coffee and smoothie franchise considering permanent physical locations. This summer, the first brick and mortar Maui Wowi location opened in Lowry, Colorado.

Fast Food Franchises Fighting Stagnation

Customer satisfaction with fast food chains is at the lowest level in five years, as measured by the American Customer Satisfaction Index Annual Restaurant Survey.

Fast Food Franchises

Perhaps the explanation is as simple as consumers viewing the concept as stale at the moment. In a September 2014 Bloomberg Business interview, Peter Saleh, senior research analyst at brokerage Telsey Advisory Group suggested that fast franchises may have met their saturation point in the United States. “Traditional fast food—McDonald’s, Sonic, Wendy’s, KFC, Taco Bell—are fairly well-saturated in this country with not a lot more room left for growth,” he said.

But the news isn’t all bad for fast food. Fast casual will be a beacon in the storm for the industry, according to Euromonitor International. In its “Fast Food in the U.S.” report, the research agency notes, “Fast casual dining will drive much of the [industry’s] growth, although other fast food should increase its value sales steadily as some consumers look to it for value and others are attracted by the variety of healthier new products on offer.”

And old favorites definitely can recapture the hearts – and stomachs – of consumers.

Little Caesars is one franchise that is bucking the current fast food trend of stagnation. Often overshadowed by its cohorts: Pizza Hut, Papa John’s and Domino’s, Little Caesars has been steadily gaining market share and increasing sales over the past few years.

In the past two years, specifically, sales by the pizza franchise have grown half a billion dollars from $2.9 billion to $3.4 billion. And from 2009 to 2014, its market share rose from 8.7% to 19%.

How has Little Caesars grown in the face of consumer pullback? According to Jonathan Maze, financial editor at Nation’s Restaurant News, the answer is it gave consumers just what they wanted: value and convenience. In a July 2015 post, he noted:

"Much like Domino’s and Papa John’s have used technology to make it easier for customers to order their pizzas, so did Hot-N-Ready.

The combination of value and convenience has lured families in search of a low-cost meal as well as pizza-loving teens and young adults on a budget. It has helped the chain take share from independents and other competitors. And it helped the chain offset rapid encroachment into the pizza business by retailers such as grocery stores and convenient marts." 

Other franchises haven’t sat still either, adding and subtracting items from their menus trying to hit on what will keep the public coming back to their establishments for more. For example, Subway is offering hummus and the popular sriracha sauce as toppings, and McDonald’s is rolling out salads with kale.

Other Food Franchise Trends              

Information on a couple more trends that are broader in scope, but still impact the food franchise industry.

Giving Patrons More Information: In 2011, QSR Magazine listed its top seven trends for the food industry at-large. One of them: transparency. “Consumers expect more information, and they are getting more information,” says Eric Giandelone, the director of food research at Mintel.

Once the domain of big-time chefs and restaurants, open kitchens have made their way to many food franchises. In general, probably the most popular examples of the concept are Japanese hibachi restaurants where the cook prepares the food directly in front of the diners, often encouraging the restaurant guests to participate in the process. Within the franchising world, open-style kitchen examples include Moe’s, Noble Roman’s Pizza, Subway, Papa Murphy’s Pizza, Domino’s, Jersey Mike’s, Cold Stone, and TCBY – particularly before the frozen yogurt chain’s remodel into a more self-service model. 

Food Franchise Report 2015

The call for transparency from food franchises mirrors the reasons for shifts within the fast food industry. Over the past several years, consumers have grown more sophisticated, and want as many assurances as possible that they are receiving food that is up to their standards. The evolution of cooking as entertainment – generated by the popularity of TV’s Food Network, Cooking Channel, and shows on other networks – has also encouraged more widespread adoption of the open kitchen concept.

In conjunction with more open kitchens, menu labeling is another mode of transparency that is coming to food franchises. Beginning in December 2016, the Food and Drug Administration will require restaurants and other establishments with 20 or more locations that sell prepared foods to post the calorie content of food “clearly and conspicuously” on their menus, menu boards and displays.

Restaurant Employment Demographics Shifting: Years ago, it was common to see more teenagers working at food establishments, franchised or not. But, as you may have noticed, the demography of the workforce in food service has shifted. 

Per the National Restaurant Association, teens represented 21% of the industry’s workforce in 2007. By 2014, it had dropped to under 17%. Conversely, food service employment for workers aged 20-24 rose to 24% in 2014 versus 21% in 2007. The amount of workers in restaurants between the ages of 25 and 34 rose less than percentage point in the same time period (23.1% to 23.7%).

However, it was the increase in workers 55 and over that topped them all. The number of workers in that age group increased by an astounding 38% between 2007 and 2014.

Reasons for the shift are linked to more than the economy and people taking any kind of work they could find. Older adults staying in the workforce longer is also a factor. “Aging baby boomers are staying in the workforce longer and filling some of those [industry] positions. And though older adults are a relatively small proportion of the industry’s workforce now, that number will only expand in the future,” says Hudson Riehle, the NRA’s senior vice president of research.

Food Franchise Report 2015

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