Franchise Buying Guide

In the Know

Fitness and Weight Loss
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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)

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This article was originally published in the January 2006 print edition of Entrepreneur with the headline: In the Know.

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