From the January 2006 issue of Entrepreneur

Every year, we at Entrepreneur sit down to examine the wide world of franchising. We always expect to find overall growth in certain categories, but the amount of growth we discovered across the board this year was phenomenal. Undeniably, 2005 is the year that franchising itself became a trend. In fact, the total number of franchise units for all Franchise 500® companies grew 11 percent from 2004 to 2005. That's an impressive jump compared to the 4 percent increase that occurred from 2003 to 2004, not to mention the previous year's drop in franchise units.

So what's spurring this amazing growth? More people are recognizing franchising as a viable means to turn entrepreneurial dreams into reality. And franchising's influence is being felt far and wide. It's attracting jaded corporate employees ready to apply their business savvy and skills to their own businesses, as well as a generation of baby boomers who aren't quite ready to retire. Meanwhile, entrepreneurs are increasingly embracing franchising as a way to expand their existing businesses. All this translated to $134.2 billion in sales during the past fiscal year for the 2006 Franchise 500® companies.

That said, we dug a little deeper and uncovered eight growing categories we predict will sweep the franchising world in 2006. Ranging from eBay consignment stores to kids' specialty services, these are hot opportunities you won't want to miss.

Do-It-Yourself Meal Preparation
We knew it was coming. We saw the signs of a budding industry. It is, hands down, among the top franchising trends for this year. Do-it-yourself meal preparation businesses are reinventing the process of cooking by transforming it into a painless social activity. Franchises like Dinner By Design do all the hard work, including the grocery shopping, prep work and even the cleanup. The customers simply assemble the meals and, two hours later, go home with a month's worth of meals that they just have to freeze and heat later. "Our stated goal is to bring the family back to the dinner table," says Robin Perry, national director of franchise sales for Dinner By Design. "Forty percent of the meals consumed in America today are eaten outside the home."

Indeed, Americans now have little time for cooking. According to a 2005 nationwide ConAgra Foods survey, more than 70 percent of parents experience some type of stress associated with dinnertime. That stress, combined with a growing desire to be with family following tragic events like 9/11 and Hurricane Katrina, make this business concept increasingly desirable and relevant in today's society.

Consequently, this category has long-term potential. "Whenever you start out in a new industry, the first question is, Is this going to be a flavor-of-the-month type of thing?" says Perry. "But this business is going to be here for a long time."

eBay Consignment Stores

We predicted that eBay consignment stores--businesses that assist individuals by selling their merchandise on eBay--would grow last year. Well, they certainly delivered the goods. Some prime examples are iSold It and QuikDrop, both of which started franchising in 2003 and have already managed to rank in this year's Franchise 500®.

Offering a simple model that requires no inventory, along with the potential for great profits, franchisors are finding eager buyers. Meanwhile, franchisees don't have to worry about a lack of customers. "While there are 168 million people worldwide who are registered eBay users, there are a lot more who aren't," says Hani Durzy of eBay. "If these stores give people the opportunity to participate in the eBay marketplace, then we say 'great.' It's a win-win situation for everybody."

As for eBay, it's only growing bigger and better. According to Durzy, during the third quarter of 2005, a total of $10.8 billion in goods were traded on eBay, and eBay International's net revenue hit $408.9 million. With a force this strong backing the industry, it's no wonder a growing number of franchisees are clicking the "Buy It Now" button.

Pets
We've been touting the popularity of pet franchises for a while, but the possibilities have reached such a crescendo that we can't help barking about it some more. This year's Franchise 500® includes a wide variety of pet businesses, from sitting and walking to training and supplies. The pet industry is big, and it's only going to get bigger. According to the American Pet Products Manufacturers Association, 69.1 million U.S. homes have a pet. And for the most part, these aren't just domestic animals cohabiting with humans. Pet owners adore their furry friends so much that they treat them like family, and aren't afraid to spend lavishly on products and services ranging from gourmet treats to mobile pet grooming. The APPMA estimates $35.9 billion was spent on pets in 2005, up from $34.4 billion in 2004.

Andrew Brooke, president and CEO of the U.S. division of Bark Busters, an in-home dog-training franchise, predicts that spending will continue to increase over the next decade, if not longer. "What you're seeing now in the boom has really only begun," he says. "Usually, when there's a wave that people jump on, that wave started a little earlier and people try to ride that wave in. Well, this wave will hold for a long time."

Kids' Specialty Services
Franchising trends may come and go, but kids' specialty services remains constant. Children-focused franchises--whether they specialize in fitness, art classes or science activities--grew in the past year. Franchises operating for the good of kids are sure to appeal to parents who want the best for their children and are willing to pay for it.

Schools are also willing to pay for it--at least when it comes to tutoring services and enrichment programs, partly due to the No Child Left Behind Act of 2001. According to Tim Wiley, an analyst with Eduventures Inc., a Boston-based research and consulting firm for the education market, schools that don't meet "adequate yearly progress" standards must provide students with supplemental education service activities. As a result, federal funding of about $2 billion a year is being provided for such activities as tutoring and enrichment programs. Since the majority of schools don't have in-house tutoring programs, many are turning to third-party providers such as franchises and will continue to do so, Wiley predicts, until they can establish their own programs.

Fitness and Weight Loss

The fitness and weight-loss categories experienced significant growth last year, and all scales indicate they will continue to do so in the coming year. After all, the factors affecting the industry last year, such as obesity and health issues, are as prevalent as ever. While popular diet crazes like Atkins have come in and out of fashion, they made people realize the need for external support systems such as weight-loss centers to help them shed extra pounds. The success of fast-growing fitness franchise Curves has also had an impact. It blazed a path for other players to venture forth and snag a portion of the growing market.

"The massive growth of [fitness and weight-loss] franchises is [a result of] gaps that need to be filled in the marketplace, and a growing awareness of our sedentary lifestyles and obesity problem," says Casey Conrad, who has been involved in the fitness industry for over 20 years and filled a gap of her own in 2000 when she founded Wakefield, Rhode Island-based Healthy Inspirations. "Health clubs have traditionally done a terrible job providing weight-loss [services] to their customers," explains Conrad. "Yet 87 percent of health-club members cite weight loss/weight maintenance as their primary reason for joining. I wanted to marry those two things and create a brand where we put exercise, nutrition, relaxation and beauty treatments all under one roof."

Meanwhile, more Americans are joining the battle to lose weight. According to the International Health, Racquet & Sports Club Association, the number of U.S. health-club members at the start of 2005 was 41.3 million, up from 39.4 million in 2004. Another related trend: Many new spa and med-spa franchises popped up in our Franchise 500® listing this year, adding muscle to this already-strong market.

Business Services
This year, the entire business services category, ranging from tech consulting to advertising, experienced steady growth. Ray Titus has witnessed and personally contributed to this new growth. He founded Sign-A-Rama, a West Palm Beach, Florida-based outdoor media franchise, with his father, Roy, in 1986. He then expanded his sphere of influence in the business services industry in 2003 with the addition of Billboard Connection, an ad agency specializing in outdoor media. It was a strategic move that gave him the opportunity to capture a larger portion of the industry and integrate the two brands.

Meanwhile, as business service franchises like Sign-A-Rama and Billboard Connection grow, it's becoming easier and more convenient for small-business owners to outsource their needs. As Titus puts it, they're "looking for experts in their fields." The bottom line is that, as long as small businesses continue to play such a dominant role in our economy, there will always be a need for business service franchises. "We service everybody that opens businesses," says Titus. "It doesn't matter what type of business they open."

Home Improvement
Just glance at the numbers to see the growth this category experienced in 2005. Showing the greatest increases were franchises specializing in aesthetics, such as home decorating services, furniture stores--which ranked for the first time this year--and window treatment franchises.

Driving this segment is the housing boom, which has created surplus equity for existing homeowners-equity that many have invested back into their homes. "In most areas, if you remodel your house, you can make substantial improvements without having your property taxes increased," says John Burns, a real estate analyst and founder of John Burns Real Estate Consulting Inc. in Irvine, California. "For that reason alone, a lot of people are opting to remodel what they've got [instead of moving]."

However, the success of the home improvement market is highly contingent on the housing industry--and just how long the current real estate boom will continue has many analysts, including Burns, wondering. But the outlook is pretty positive. A recent survey by Standard & Poor's Corp. states that "demand for household appliances and home furnishings is rising steadily in step with a strong housing market, and the trend is likely to continue."

Quick-Service Restaurants
Americans have a love affair with food--especially if it's tasty and accommodates their busy lifestyles. The National Restaurant Association estimates that sales at quick-service restaurants totaled $134.2 billion in 2005, a 4.7 percent gain over 2004. Meanwhile, entrepreneurs are lured by the prestige of owning a restaurant, but they have a hard time succeeding independently. "The failure rate for people opening their own restaurant concepts is in the 90 percent range," says Bill Phelps, co-founder with Rick Wetzel of Wetzel's Pretzels, a Pasadena, California-based soft pretzel franchise. "The failure rate for quick-service franchises is closer to 15 percent to 20 percent."

Not surprisingly, the interest from both consumers and franchisees drove the quick-service food franchise category to unprecedented heights last year. And Phelps predicts that the category will continue to grow dramatically over the next 10 to 15 years. One particularly hot trend we noticed this year is the popularity of fresh and healthy quick-service restaurants offering salads, soups and sandwiches.

As for Wetzel's Pretzels, according to Phelps, the franchise is on track to double its number of locations in the next three years. He says, "We're just hitting our stride." And from the results of this year's Franchise 500®, it seems like the world of franchising is right there alongside him.

Hot Stats

  • High Jump: The number of franchise units increased by 11 percent between 2004 and 2005--that's nearly three times the percentage of growth that occurred between 2003 and 2004. In 2003, there were 337,693 franchise units; in 2004, there were 351,459; and in 2005, there were 391,139.
  • 100% More Connected! Tech franchise systems in the Franchise 500 doubled in size over the past two years.
  • Sprouting Up: The number of U.S. and Canadian franchise units in these white-hot categories is growing fast. In the eBay Drop-Off Store category, there were zero units in 2004 and 186 units in 2005. In the Kids category, there were 5,622 units in 2004; that number leapt to 6,442 in 2005.

Source: Entrepreneur magazine's Franchise 500 (2004 - 2006)