What are some happenings in the franchise world that systems such as the ones that made our Top 100 ranking might be facing in the coming year? Here is a look at three.
In January it was announced that 2012 was the warmest year on record, which continued an upward temperature trend in the United States. The resultant drought that took place over the summer and fall seasons will have lingering effects on the availability of commodities like corn, soybeans and cheese.
Ricky Volpe, an economist with the Economic Research Service for the United States Department of Agriculture (USDA) says that the USDA is “looking at a 20 - 25 percent reduction in the original forecast for both [corn and soybeans last year]”. 4 The expectation of a depleted supply is leading some suppliers not to contract out their products more than six months into the year.
Additionally, farmers as a whole, reluctant to pass on rising costs, are cutting production in an effort to keep prices stable. The production cut has led to a spike in the prices of commodities, which will affect virtually all places food is sold: grocery stores, restaurants, etc. “Most food companies are projecting food inflation for 2013 to be up 3 percent to 5 percent,” says Edward Jones & Co. analyst Jack Russo. 5 For the franchising industry, the effect is significantly felt in the food industry where some of the most popular (and growing) concepts are dependent on corn-fed animals like pigs and poultry.
The climate across the United States isn’t the only factor in the supply strain on these commodities. Over the past several years, growing middle class economies in India, China and other developing nations has also led to a rise in the demand for products that feature these food sources.
Typically, rising commodity costs would mean higher meal costs for the consumer. Yet with an unstable economic environment, franchise systems are reluctant to raise prices in the same way they have done in the past in order to keep consumers coming into their establishments. So what can franchises do to lessen the impact commodity supply demands can potentially have on their bottom line without substantially raising the end price for consumers? Use creativity. A few examples of innovative ways franchises are working around commodities concerns are:
- Encouraging consumers to try other menu items with less expensive ingredients by using limited-time offers,
- Cooking more frequently and in smaller batches to reduce waste, and
- Buying different cuts of meat and collaborating with their chefs to produce new dishes.
In the future, if convenience store operators have their way, food franchises won’t only be challenged by fluctuating commodity prices and each other. In a January 2013 BusinessWeek interview, Jeff Lenard, spokesman for the National Association of Convenience Stores, said, “Food is the future.”
For decades, cigarette sales (along with gasoline sales) have been a stalwart of convenience store sales. Laws, taxes and a societal push towards a healthier lifestyle have nevertheless curbed the revenue stream significantly. According to BusinessWeek, cigarettes still make up about 40 percent of non-gasoline sales for convenience stores, but the gross margins have decreased steadily from almost 21 percent in 2002 to less than 15 percent in 2011. Conversely, food carries a much more appealing gross margin for convenience store operators at upwards of 55 percent or more. 6
In response, many convenience stores are undergoing a makeover in efforts to become a bigger player in the eyes of consumers looking for meal options.
For example 7-Eleven is “working to create a portfolio of fresh foods,” according to Anne Readhimer, senior director of fresh food innovation. The company’s efforts include hiring culinary and food science experts to study industry trends and develop new products. By 2015, the chain hopes that it will have doubled the percentage of fresh food sales in its American and Canadian markets. 7 The push toward food service for 7-Eleven isn’t just in North America. For example, Indonesian outlets resemble cafes more than convenience stores with tables and chairs, free Wi-Fi service, and even valets to help customers park their scooters.8
There is also an “if you can’t beat them, join them” approach occurring in the push to make convenience stores more foodservice friendly.
According to Jillian Clothier, director of franchise development for Kahala Franchising, L.L.C., parent company of several brands including Cold Stone Creamery (#67), food franchises having a presence within convenience stores “is part of a larger trend of c-stores offering more devotion to foodservice. The money isn't in gas and cigarettes like it used to be, so they're focusing on food. Plus, people trust c-stores more than they used to. The bathrooms are cleaner, they can purchase healthier food now and it's more of a one-stop shop than ever.” 9
“Over the last three years, interest in our home-based opportunities has greatly increased,” says Erin Crawford of United Franchise Group, which offers six franchise opportunities including EmbroidMe (#97) and Sign-A-Rama (#53). “Also, with the depressed job market, we are talking to more people everyday about taking control of their future and owning their own business rather than working for someone else.”
Fueled by factors such as a stubborn employment market, lesser overhead costs, technological advances and the desire for lifestyle flexibility, running a home-based business is one of the fastest-growing ways for prospective franchise owners to start in the United States.
The industry is also attractive to prospective franchisees because of the variety of options available. Franchisees in the industry can choose a path that takes them into senior care, event planning, tutoring, cleaning, or numerous other fields.
It’s crucial for prospective franchisees to note that many of the benefits of a home-based franchise can actually turn out to be challenges if adequate prior planning hasn’t been performed. Crawford has offered four tips to make the best of this franchise opportunity:
1. Have a separate work space in your home that allows you to be free from distractions. If you are not good at staying focused, rent a shared office space.
2. Always meet your clientele in their place of business, as opposed to a café or other location. It’s a great way to learn more about them and give you insight into their organization.
3. Invest in local marketing. As you do not have a store front, it will be more important to make sure that you create a strong presence in your market through online marketing and local PR. Although it’s a “home-based” business, it’s crucial to leave the home and go out into your local market and let people know that you are there.
4. Set a working schedule for yourself that you can follow to stay on track. You may veer slightly, depending on daily meetings and appointments, but having an ideal schedule for your day that dictates when you will be focusing on certain aspects of the business will make sure that you get the job done.
If you’re interested in home-based franchise opportunities, please see our Home-Based Franchise Industry Report for more information on this attractive franchise segment.