Food Franchise Industry Reports:
The United States Department of Commerce defines full service restaurants as “establishments primarily engaged in providing food services to patrons who order and are served while seated and pay after eating.” These establishments may provide takeout or delivery meals, sell alcoholic beverages, or present live entertainment. The term “full service” can encompass anything from a family-style eatery to an elegant restaurant; from casual dining to fine dining. Larger franchises within the industry include: Denny’s, Golden Corral, IHOP and Applebee’s.
Following a period of decline coinciding with the recession, full service restaurants are on the rebound. Full service restaurants “were the first to feel the pinch and the last to feel the recovery,” according to Nima Samadi, senior analyst at IBISWorld, a market research organization.1 As the economy continues to recover, the industry will benefit from lower unemployment and an increase in disposable income. An apparent repressed demand for full service restaurant service could also aid in industry growth. According to the National Restaurant Association two of five consumers say they are not using restaurant services as often as they would like.2
Shifts in consumer consciousness regarding food and health based decisions may significantly impact the future direction of full service food franchises. Some of these trends include:
Finding New Revenue Streams
The idea started in Florida where some franchisees noticed a younger crowd hanging out towards the end of the night. The franchise caught on and began theme nights for their late-night consumer segment such as “White Parties”, Luau, Karaoke, and Girl’s Night. In mid-September 2012, the franchise took the “Club Bee’s” concept national. Applebee’s hasn’t released specific financial figures, but says the move has been profitable.
Source: Applebee's: Your friendly neighborhood disco? http://lifeinc.today.com/_news/2012/09/21/14011381-applebees-your-friendly-neighborhood-disco?lite
Gluten & Food Allergy Conscious
People are increasingly aware of the ingredients in their food, especially potential allergens. This awareness has led restaurateurs to examine their menus and make changes, including introducing alternatives.
One of the most popular developments in recent years is the expansion of gluten-free food. According to the National Foundation for Celiac Awareness, nearly 21 million people have some kind of gluten sensitivity, including approximately three million Americans who have celiac disease (a digestive disease that causes intolerance to gluten).
Adverse physical reactions and serious illness can occur in individuals with varying levels of gluten intolerance. Due to this, restaurateurs view gluten-free dining as an essential option for customers rather than a passing fad. Says one chef and restaurant owner: “…You can’t differentiate celiac disease from a trendy [gluten-free] diet...A lot of people say you’re not saving lives, you’re just serving food and beverage, but day to day with allergies you kind of are. People are entrusting you with their health and safety and that has to be the number one concern.”3
Franchises are accommodating individuals with food allergies, including celiac disease and gluten intolerance, by preparing gluten-free food on dedicated workstations away from other menu items, using one set of utensils per ingredient to prevent cross-contamination, and clearly listing common food allergens via ingredient checklists on the menu.
Movement towards Downsizing
Restaurant portion sizes have more than quadrupled since the 1950s—and, probably with little coincidence—the rate of obesity in the United States has dramatically increased over that time period as well.
From 1950 through 1960, 33 percent of U.S. adults were overweight and 9.7 percent were clinically obese.4 In 2012, 68.8 percent of adults are considered at least overweight (35.7 percent are considered obese) and 31.8 percent of children and adolescents are considered at least overweight (16.9 percent are considered obese).5
In an effort to curb the overweight and obesity epidemic in the U.S., advocates from several areas have joined together to decrease the growth of serving sizes. Even government officials are taking action. In mid-September 2012 the health board in New York City took steps to ban super-sized, sugary drinks at restaurants, cafeterias, and concession stands. Many advocates of portion reduction maintain that consumers rely on visual cues when eating as much as—if not more than—physical ones. They also maintain that if portion sizes are reduced, consumption naturally decreases based on those visual cues. Based on studies supporting this view, The Obesity Society stated:
“A person's eyes may influence how much they consume, leading them to be less influenced by physiological cues of satiation. As a result, their estimate of how much they have consumed and how sated they are may have to do more with what they believe they saw themselves eat and less with how much they actually ate.”6
There are many examples of full service restaurant franchises that have expanded their menus to include portion and calorie control options. A few of these examples are as follows:
• Applebee’s offers a specific menu with meals under 550 calories
• Denny’s offers a “Fit Fare” menu consisting of several reduced calorie options
• IHOP gives patrons the choice of ordering a “Simple & Fit” meal (under 600 calories) or lower calorie version IHOP classic meals
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 of the provisions and fees related to investing in a specific franchise.
Investing in a full service restaurant franchise often requires a greater personal and financial commitment than other food franchises. There are several factors to consider when researching and evaluating potential franchises, some of which are below.
Variety of Options
There are full service restaurants available in an assortment of food genres, themes, and styles. Full service restaurant franchises range from family-style buffets to sports bars to higher-end dining. Themed franchises that immerse customers into a specific atmosphere based on past trends or decorum can also be quite appealing.
Importance of Location
The success of franchises with a physical presence is greatly impacted by location. Poorly situated franchise restaurants that are in a demographic area that cannot sustain business may suffer even if the dining experience offered is superb. Additionally, a great location can act as an excellent marketing initiative towards potential customers. During site selection, an experienced franchisor is an invaluable resource with dependable knowledge of the market and demographics that will keep the concept thriving.
Licenses and Permits
Franchisees are ultimately responsible for complying with all local, state and federal laws and regulations applicable to the operation of their restaurant, including health, sanitation, food and beverage handling, food preparation, waste disposal, smoking restrictions, and point-of-sale disclosures. A source of special concern for many full service franchisees is liquor licensing because a higher percentage of full service restaurant franchises offer alcohol for consumption when compared to limited service (fast food) restaurants. The steps necessary to obtain a liquor license varies from state to state. It is strongly recommended that prospective franchisees consult an advisor to determine all applicable laws and regulations for their locale.
FDD Profiles for Sample Full Service Restaurant Franchises
Investment costs vary for different franchises depending on the particular business system and execution requirements. The following charts demonstrate, by comparison, 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 investment into a franchise 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.
Estimated Initial Investment Ranges for Sample Full Service Restaurant Franchises
A significant item 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 franchise samples ranges between five and 20 years, with some franchises having an indefinite term length. 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 the royalty for each of the sample franchises.
Royalties for Sample Full Service Restaurant 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.