6 New directions for today's franchises.
Ever since the 1950s, franchising has been a popular and profitable method of doing business for many entrepreneurs. According to the International Franchise Association (IFA) in Washington, DC, 600,000-plus franchise units in the United States generate more than 40 percent of all retail sales--about $802 billion annually.
What's hot in franchising today? That's a question on the minds of every entrepreneur who is considering an investment in a franchise. "Franchising, like all successful business innovations, follows the marketplace," says Don J. DeBolt, IFA president. "Where the market goes, franchises follow."
So, where is franchising headed in 1997? Take a look at these six hot trends:
1. Children's products and services. With more than 45 million children under age 12 in the United States, there's plenty of opportunity for franchised businesses to draw in parents looking to clothe, educate and entertain their children. Add to this the financial restrictions many public schools currently face trying to fund music, art and computer classes, and you have a ready-made niche for entrepreneurs who can provide these products and services.
"With more limited budgets, schools are forced to treat music, art, sports and other subjects as extracurricular activities. So parents are finding ways outside the school system to teach their children these disciplines," says John Campbell, president and CEO of Franchise Masters, a Minneapolis-based franchise-development firm. Demand for children-oriented franchises, which, the IFA says, is growing 20 percent a year, is also being fostered by two-income families who have more money than time to spend on their children. "They're looking for alternative ways to take care of their children," adds Campbell.
What parents are finding is a host of franchised businesses offering these alternatives, from tutoring services, nursery schools and day care to entertainment programs and computer education. Also, franchised children's retail stores are tapping into the thousands of dollars parents spend each year on a child's clothing, toys and books.
2. Home health-care and elder-care services. At the other end of the age spectrum, the nation's rapidly growing senior population offers a ready market for prospective franchised business owners. According to U.S. Census Bureau figures, while the general U.S. population has multiplied five times during the past century, the number of people over age 65 has multiplied 12.5 times. It's expected that the 65-plus population will reach 45 million by the year 2000, with one out of every five Americans over age 65.
Major components of the seniors market are home health-care and elder-care services, notes Campbell. "People are living longer than before and have many more years from retirement to death," he explains. "At-home health-care and assisted-living services, which allow people to live in their homes during their later years, seem to be the hottest franchise opportunities in this market."
Franchised businesses, which provide licensed and unlicensed medical personnel to care for the elderly in their homes and supplemental staffing for nursing homes and hospitals, are finding strong demand for their services.
While health care and elder care are leading forces in the seniors market, there are other niches waiting to be filled. Franchised businesses specializing in investment services and retirement counseling, elder health and fitness programs, transportation services, convenience products, or travel are market niches worth pursuing.
3. Homebased and part-time businesses. Probably the hottest growth area in franchising is in homebased and part-time businesses, says Andrew A. Caffey, a Bethesda, Maryland-based attorney specializing in franchise and business opportunity law, and a former IFA general counsel. "The trend reflects the enormous societal move toward homebased businesses, the desire by so many investors to supplement their income, and the growing ranks of smaller investors aching to leave the limitations of their weekly paychecks," Caffey says.
The trend has been spurred by a number of other factors. The advent of personal computers, modems, fax machines and e-mail make it possible for franchised business owners to set up office almost anywhere. Secondly, the "downsizing of corporate America," notes DeBolt, "has displaced thousands of middle managers who have put their corporate experience to work to run businesses for themselves."
Lower start-up costs and greater flexibility in working conditions have had an impact, too. "You don't have the overhead that is attendant with retail or office space, making the overall investment in a homebased franchised business smaller," explains John Reynolds, IFA's executive vice president.
4. Single-product stores. Retail franchises built around specialty products remain an important niche development in franchising. This is particularly true with specialty food franchises, whether they're bagels, pretzels, ice cream, doughnuts, coffee drinks, or healthy fruit shakes. "Specialty-food-product businesses are not even close to saturation levels," says Dr. Robert Justis, professor of franchising at Louisiana State University in Baton Rouge. "Franchises such as Great Harvest Bread Co. bakeries, which offer a specially made, fresh product at a premium price, will continue to thrive in the '90s."
5. Nontraditional retail locations. The latest and most dramatic change in franchising these days, says Caffey, is the advent of "nontraditional" retail locations.
Franchisors are searching beyond shopping malls, strip centers, and other traditional retail locations to reach more customers. That's why customers are finding a mini-retail McDonald's inside the convenience store at their neighborhood Mobil gas station, a Dunkin' Donuts stand at the airport, or a Mail Boxes Etc. store on a college campus. "Retailers tend to follow the dollar, and the dollar is moving through virtually any high-foot-traffic locations," says Caffey, noting that mall kiosks and even zoos are now retail sites for franchisors.
Nontraditional locations are leading the way to another key franchising trend called co-branding, a practice where two different franchise companies team up in the same location. Co-branding is most visible with complimentary food franchises, like the Miami Subs and Baskin-Robbins franchises popular around the country. "There is some synergy between the two," notes Caffey.
Both consumer and franchisee can benefit from co-branding. "It's a clever way of generating more foot traffic than would otherwise exist," Caffey explains. The franchisee also can enjoy savings in costs, since he's sharing retail space and basic operating expenses with another franchisee. The consumer gets the added convenience of two complimentary services at the same location. Co-branding can work equally well in other industries, as well.
6. Smaller, upscale markets. While McDonald's, Jiffy Lube, Mail Boxes Etc., and hundreds of other franchises appeal to the masses and base their marketing strategy on competitively priced products and services, other franchises do just the opposite. They target a select, upscale market with a quality product or service at a premium price. "There's a big market, selectively, for up-scale franchise opportunities," Justis says. "If you have a specialty food or other item that people are willing to spend money on, and the quality is exceptional, then people are going to buy it. It's a tremendous way of franchising." A prime example is Nature's 10, a franchised retail-store operation specializing in high-fashion jewelry, diamonds and gems. Computers to help customers design their own pieces and live diamond-cutting demonstrations help make shopping at Nature's 10 an upscale experience.
A former legislative press secretary and corporate public affairs executive, Carla Goodman now writes about business from her home office in Sacramento, California.
Here Today, Gone Tomorrow?
How do you know how long a franchise will last? Will bagel stores, for example, go the way of muffin shops or become mainstays like Burger King and Wendy's? "No one really knows the answer," DeBolt admits.
How can you avoid investing in a business franchise whose product or service is a fad? "Research the market," suggests DeBolt. "Within any given industry, there are several different franchise concepts. Carefully look at each and see where they are in their growth and development. Check out the franchisees' experiences and draw some conclusions that are meaningful."
"Go with a product that has been established in the marketplace and is going to fit with the demographic trends and basic American tastes for the next 15 to 20 years. One trend that will remain solid is services for people in and around their homes. Home-delivery services are an example," suggests Caffey, citing Take Out Taxi, a franchise which delivers restaurant meals to people at home. "It's part of the baby-boomer trend with people turning age 50 and then age 60. There's a market for franchises providing services that are key to their needs."
Andrew A. Caffey, 3 Bethesda Metro Center, #700, Bethesda, MD 20814.
Franchise Masters, 1000 Shelard Pkwy., #320, Minneapolis, MN 55426, (800) 328-4158.
International Franchise Association, 1350 New York Ave. NW, #900, Washington, DC 20005-4709, (202) 628-8000.