From the January 2005 issue of Entrepreneur

The vibrant and ever-changing world of franchising is one where anything is possible. And every year, without fail, strong patterns emerge, revealing the industries that hold promise for the year to come. This year is no different. After months of careful research, we are pleased to present the franchise segments that have caught our attention and promise strong growth in 2005.

Expect the next 12 months to bring expansion across a variety of industries. Fitness and weight-loss franchises will grow as Americans continue their battle to get slim, tech consulting will be in greater demand than ever, eBay drop-off stores will spread rapidly, and children's tutoring/enrichment programs and senior care will maintain their spots in the limelight. Some of these trends are already visible in this year's Franchise 500®. So, without further delay, here's an in-depth look at the trends to watch in 2005.

Lighten Up and Get Fit

Whether it's the food or the lifestyle, Americans tend to be overweight. Countless reports, studies and articles affirm this almost daily, and the news is not falling on deaf ears. The overwhelming popularity of low-carb diets alone illustrates the degree to which Americans are focused on the single goal of shedding pounds. In addition, the skyrocketing cost of health insurance has individuals and companies searching for ways to control their medical bills.

Weight control is definitely one of those ways. A 2004 report by nonprofit research group RTI International and the Centers for Disease Control and Prevention estimates that obesity costs the United States as much as $75 billion in medical expenditures annually. "With the cost of health care being what it is, people want to make it a priority to take care of themselves," says Shirley Archer, an author, speaker, and health and wellness educator for the Health Improvement Program at Stanford University in Stanford, California. Consequently, fitness has maintained its place among the fastest-growing categories in this year's listing-and the weight-loss franchise category has been reborn, after having disappeared altogether in 2000.

Fitness franchise Curves International Inc. became an industry leader when co-founders Diane and Gary Heavin recognized and addressed the need to make women feel comfortable while working out. Curves' informal slogan-"No men, no mirrors, no makeup"-continues to strike a chord among women, securing the franchise a viable share of the $14.1 billion fitness industry. Curves celebrated growth of 37.3 percent in the past year and now has more than 3 million members. According to Gary, the first stage of growth-North America-is nearing completion, and phases two and three include opening about 8,000 centers each in Asia and Europe within the next seven years.

Going hand in hand with fitness is weight loss, a category that's also experiencing a revival in this year's Franchise 500®. During the '90s, weight-loss franchise Jenny Craig experienced nearly a decade of stagnant growth-and others followed its lead. "There were some issues in the early '90s around some of the weight-loss programs that were causing health problems," says Doug Fisher, vice president of Jenny Craig's franchise department. "So the industry went through a transition during the mid- to late '90s, where nobody was really growing too much."

However, the calm before the storm has passed. In May 2002, Jenny Craig was acquired by private investment firms ACI Capital and MidOcean Partners, and the franchise is now gearing up for aggressive expansion. According to Vic DeSio, director of franchise development for Jenny Craig, more than 15 percent of the company's centers are franchises. Plans are in the works to eventually increase that number to 40 percent, with the company aiming to open 20 to 30 new centers during its current fiscal year, which ends in June.

Curves and Jenny Craig aren't the only ones capitalizing on this demand. Within the past year alone, we at Entrepreneur have seen the number of fitness and weight-loss franchisors in our Franchise 500® grow from eight to 17. According to the International Health, Racquet & Sportsclub Association, 39.4 million Americans belong to a health club-up from 24.1 million 10 years ago-so there are definitely more than enough consumers joining in to feed this growing trend.

Miracle Growth

These hot industries are on the rise-look how they've grown in the past two years (based on the number of operating franchise units in the United States and Canada).

Tech & eBay

Tech It Out

Tech consulting underwent phenomenal growth in 2004 and will continue to sizzle in 2005 as we become increasingly dependent on technology and as it becomes more advanced to meet our every need. The demand is stronger than ever for tech-consulting franchises that offer expertise and solutions. In the United States and Canada, unit growth among Franchise 500® tech-consulting franchises increased 47.3 percent from 2003 to 2004.

Lonnie Helgerson, co-founder with Phil Helgerson of Expetec, an Aberdeen, South Dakota-based tech-consulting firm, has seen a 293 percent increase in growth over the past year. Helgerson credits much of this growth to the fact that small and midsize businesses are increasingly reaching out to companies like his for answers to their technological problems. "We keep our ear to the rail, and we're able to see the new things coming up quicker and [can deliver] through our system faster than somebody could if they had employed an IT worker," says Helgerson.

He has also seen an increase in business as the internet becomes an increasingly common way to do business. Using the net has opened the doors to a whole new layer of technological problems. While some might see the multitude of spyware and viruses flooding cyberspace as a bad thing, it creates a definite need for consultants who can provide solutions to such serious security issues. Says Helgerson, "Any business that's going to compete today needs to be on the net to do business."

Those who are intimidated by entering such a fast-paced industry can find opportunities in franchises like New Horizons Computer Learning Centers, which offers assistance in computer training, and Cartridge World, which has made a business out of toner replacement and sales. Toner replacement may not sound like the most exciting business in the world, but it's definitely a growing franchise category in our listing.

eBay Mania

The excitement and popularity of eBay shook the world, and we're still feeling the tremors. Piggybacking on the success of the world's first online marketplace are eBay drop-off stores. Across the nation, franchisees are setting up shop at an impressive rate to collect and sell items belonging to those who don't have the time or know-how to do it themselves. Considering that about 90 percent of eBay participants are buyers, there's definitely enough room for more sellers. Three franchises have made their way onto our listing, boasting growth from zero to 33 units combined since they began franchising in 2003.

ISold It opened its doors for business in December 2003 and has been going strong ever since. What's the company's secret? Ken Sully, president and CEO, says, "The key to this whole thing is the customer experience at the store level."

The promise of profits will have franchises scrambling to get creative so they can claim their share of this new but very promising market. And even though the future of these drop-off stores is contingent on eBay's continued success, this is no cause for concern. With 51.7 million active users, eBay is "such a big marketplace," says Sully. "And it's just going to get bigger and bigger."

TREND CAREFULLY

The word's out. All around you, people are talking about the next big thing. Whether it's a miracle weight-loss solution like low-carb diets or a trend within another, like Pilates, customers come flocking. But along with the hype comes the possibility that consumers' desires will change with the tide. So how do you plan an entrance-and exit-strategy when purchasing a franchise that's a big hit today but could become old news tomorrow? Buying a trendy franchise takes more precision than you might think.

Michael H. Seid, managing director of Michael H. Seid & Associates, a West Hartford, Connecticut-based management consulting firm specializing in the franchise industry, offers these tips:

  • Act fast, yet proceed with caution. Normal trends tend to have a five-year life span, so it's important to get in early. At the same time, commit to a shorter term when the investment is not so secure.
  • Put the franchisor to the test. Says Seid, "When you're getting into a franchise system that needs to be nimble, make certain those people have experience in [overseeing] change."
  • Know what you're getting into. Ask the franchisor questions like, "If the trend changes, what is the next product you plan to add?" "If they don't have an answer or aren't talking about research and development," says Seid, "you still might be able to buy into the trend, but not with that franchisor."
  • Don't invest more than you can afford to lose. Bank your money, and look at other invesments.
  • Don't fall in love with a trend. Trends are fickle. Adored one day, they can become one-hit wonders the next. "Buy on business sense," advises Seid, "not on emotions."

Growing Up, Growing Old

Growing Up, Growing Old

Two segments of the population, kids and seniors, caught our attention last year and are still growing in 2005. Children's enrichment and tutoring programs such as The Mad Science Group, which offers science activities, and Huntington Learning Centers, which provides educational services, are continuing to get support from parents wanting the best for their children.

But parental concerns make up just the tip of the iceberg. The tutoring segment received a particular boost when the government passed the No Child Left Behind Act of 2001, designed to improve student achievement. As a result, tutoring companies in the K-12 education sector celebrated 2.7 percent growth in 2003, as total revenue rang in at $50.1 billion, according to Eduventures Inc., a Boston-based research firm. This is in stark contrast to the 1 percent growth in revenue that took place in 2002. "Schools are now paying for tutoring programs to get their kids' scores up to meet the No Child Left Behind targets," explains Deborah Stipek, dean of the Stanford University School of Education. "So there's an industry that's developing to provide schools with tutoring in test taking."

On the other end of the spectrum, seniors are causing quite a ruckus. The care and attention this segment requires will only continue to grow as the baby boomers age. After all, by 2010, more than 39 million Americans will be 65 or older, according to career development website CareerTrainer.com. This translates to golden opportunities in the years to come for senior-focused franchises such as Comfort Keepers and Home Instead Senior Care. Overall, senior-care franchises that were ranked in the Franchise 500® saw 24.6 percent growth during the past year.

THE RUNNERS-UP

Interested in franchising but not especially passionate about the industries already mentioned? Here's a look at some other categories that are performing respectably.

  • The way to a person's heart is definitely through the stomach-which might explain the perpetual problem with obesity. Despite the weight-loss whirlwind, there are certain delicacies that have consumers salivating. This year, you can bet that franchises serving coffee, ice cream and smoothies will be successful in luring customers back for more with their vast selections of espresso-based beverages, tasty mix-ins and frozen concoctions.
  • If you like to organize and don't mind doing it in other people's homes, home organization may just be the perfect industry. Consumers want to get their homes in order and are willing to pay to have it done for them. By offering such services, closet- and garage-organizing franchises like California Closet Company and GarageTek are making a profit by taking the clutter out of people's homes.
  • A relatively new category, business consulting and peer groups, keeps growing from one year to the next. Franchises in this category, such as Action International and The Alternative Board TAB, saw a 17.9 percent increase in the number of units worldwide in 2004 and will experience continued growth this year.
  • Consumers are fascinated by the new era of a world without wires and have rapidly become dependent on the convenience that comes with it. Feeding off this demand are franchises like @Wireless and Wireless Zone, offering consumers the latest in wireless technology.
  • With spending for pets ringing in at more than a whopping $30 billion in 2004, according to the American Pet Products Manufacturers Association, this is one industry not to be overlooked. Whether it's providing dog training, day care or treats, give our furry friends some TLC, and you can be sure pet owners will seek out your services.