Franchising Outlook

-- Chain Leader, 2/1/2008

What’s the outlook for franchising this year? The business has nowhere to go but up, predicts Darren Tristano, executive vice president of Technomic Information Services, a Chicago-based research firm. A new Technomic report focuses on America’s top 200 franchisee companies, which together represent more than 16,000 franchise units. Here are Tristano’s predictions for what lies ahead:

Larger and More Focused Franchisees.

Among franchisees, expect more area development and larger multi-unit franchisees. “What companies like Subway are starting to learn is that they’d rather have fewer franchisees with larger holdings,” says Tristano. “Single franchisees are more work than someone with 10 to 30 units.” Look for larger regional companies that stick with just one, two or three concepts. Only 17 of the top 200 franchise companies operate four or more chains, the new report found.

Explosion of Smaller Concepts.

At the same time, more small franchise concepts will emerge: “Anybody who’s got more than one restaurant that’s successful wants to franchise; there’s no downside,” says Tristano. Watch for more coffee and pizza franchises, he predicts.

International Incoming.

More international companies will come to America to open franchise restaurants. “That’s really driving the franchise business,” says Tristano. Look for more Asian brands on the West Coast (such as Red Mango and Garlic Joe’s) and European brands on the East Coast (such as Wagamama and Paul’s Bakery).

Limited Service Rules.

Leading franchisees will continue to focus on limited-service restaurants. Technomic’s report found that 132 of the top 200 franchise companies (66%) operate only limited-service chains. The leading brand by number of units is Pizza Hut with 2,822, followed by Burger King with 1,969, Wendy’s with 1,727, Taco Bell with 1,592 and KFC with 1,209.

More Franchising.

More restaurant chains that are traditionally company owned will start to franchise. Says Tristano: “To grow aggressively, you have to franchise.”