Good as Gold
Much of the recent success in franchising can be traced to two demographic trends: Americans are getting older and feeling pressed for time. Not good news for Americans in general, but in franchising circles, that means booming business. Whether seeking care for seniors or children, help around the house or a quick meal, consumers will spend on any service that makes their complicated lives a little easier.
In fact, we're already seeing the effects in this year's Franchise 500®-certain categories recorded dramatic growth in spite of a weak economy. Here's a look at some of the hottest franchising trends for 2004 and beyond:
Perhaps the most stunning growth of the past year has occurred in the senior-care segment of franchising. Seven senior-care companies in our Franchise 500® ranking grew a total of 370 units in just one year, averaging more than 52 units per company. The franchises ranked in this category grew almost 39 percent in the past year.
Despite the large increases, this market has by no means peaked. "By 2010, 39 million Americans will be 65 or older. That's almost 20 percent of the population," says Joel Libava, vice president of the Cleveland office of FranNet, a franchise consulting firm. "Anything that relates to seniors, whether it's senior care or services that save seniors time, is going to be popular" for some time.
According to the Department of Health and Human Services Administration on Aging, about 30 percent of noninstitutionalized seniors live alone. Many of them need extra help around the house and seek companionship and assistance with daily activities.
"Numerous studies point to the same trend: As we age, we want to stay in our own homes," says Allen Riggs, president and COO of Comfort Keepers, a nonmedical in-home senior-care provider that gained more than 100 units this year. "Even if assistance is needed, people want that assistance in their homes."
Seniors 68 and over account for 14 percent of spending power in the United States, totaling about $588 billion, according to a 2002 study by American Demographics magazine and software company MapInfo. Health care is the top spending priority of this group-they spend 67 percent more than the average consumer on medical services and supplies.
As the nation ages (older boomers start turning 60 later this decade), this segment will grow. "Elder care will replace child care as the number-one social issue in North America," predicts Jeff Huber, vice president of franchise development for Home Instead Senior Care, a franchise that grew from 356 to 448 units over the past year.
"Parents want their kids to have fun and be [well-educated], and they'll spend money [to ensure this] in good times and bad," says Steve Hockett, president of FranChoice Inc., an Eden Prairie, Minnesota, franchise consulting firm.
In our Franchise 500® listing, the children's products and services segment enjoyed steady growth over the year-about 6 percent growth in learning and 18 percent growth in fitness. Also, for 2004, children's products and services ranked as one of the top 5 overall categories in terms of unit size. In the first Franchise 500® in 1980, the category was barely noticeable.
So what's changed? Spending on children is now being fueled not just by boomers, but by Generation X, a group that boasts $736 billion in spending power and includes many new parents.
Another major change in the market over the past 25 years is the proliferation of the dual-career family. "This has become the model American family, and child care is the most significant decision these parents have to contemplate," says Lisa Fisher, marketing and PR manager of Goddard Systems Inc., an education-based child-care franchise with about 145 franchised units.
Like the children themselves, the opportunities in this sector are multifaceted. According to some in the industry, this is an ideal time to enter the education sector. "Our franchise inquiries have been on the rise because parents want to make sure their children are prepared for college and the higher demands of today's work force," says Mark Mele, assistant vice president of franchising for Kumon Math & Reading Centers, a supplemental education program with more than 23,000 units worldwide.
Families are also looking for enrichment programs. "Parents want programs that round out a child's skills and open them up to explore new possibilities," says Doug Howard, president of Drama Kids International Inc., an after-school drama program with 117 franchises.
Kids' fitness programs are also growing "because of the national concern over fitness and rising obesity rates in children," says Caryn Burnier, franchise sales director with Stretch-N-Grow International, a children's fitness franchise that added more than 50 units last year.
"We expect to see more children enrolled in fitness programs in the coming year," says Jerry Perch, vice president of sales and marketing for the 92-unit Kinderdance International Inc., a dance, gymnastics and movement program for children ages 2 to 8. "Parents are becoming more aware of the need for good developmental programs."
A tech rebound is brewing in our Franchise 500®. Back in the 1980s, tech franchises were powering up, thanks to the popularity of computer retailers and software stores. Then, like the industry overall, tech franchises took a nose dive. But in the past couple of years, we've seen a major resurgence in the category, particularly in computer training and consulting. Unit growth among Franchise 500® tech franchises was almost 54 percent between 2002 and 2003 in the United States and Canada and about 30 percent worldwide.
Why? "We're seeing an increased and continual dependence by people and businesses on their technology," says Chip Reaves, national director of Computer Troubleshooters, an on-site computer services provider whose units nearly doubled last year. "People need advice on what to buy and what not to buy, and solutions for overcoming problems."
Computer Moms International Corp., a training and support provider, has seen a shift in its client base since it started 10 years ago. "The greatest demand for our services has swung to the business market," says Linda Burzynski, president and CEO of Computer Moms, which added 30 franchises last year. "More businesses are looking to outsource their IT support solution requirements. The demand for quality full-service training and tech support is vast now and expected to become even greater."
Whether influenced by lower interest rates, a desire to curl up in a cozier home or the gaggle of home improvement shows, consumers keep spending on their dwellings. According to a 2002 survey by American Demographics and MapInfo, younger baby boomers, with an estimated spending power of $1.1 trillion, are investing in their homes. Nearly 69 percent of this group are homeowners who spend 17 percent more than the average consumer on their dwellings.
This home-sweet-home mentality resulted in almost 15 percent growth in the home improvement category of this year's Franchise 500�, with the most growth recorded in the building services, handyman, remodeling, windows, painting and lighting sectors.
Kitchen Tune-Up, a kitchen remodeling franchise, credits TV shows like Trading Spaces and While You Were Out, and lower interest rates, with ramping up interest. Fitness
Sure, fitness franchises have been around forever. But the growth in this category wasn't all that exciting until recently. This year, fitness franchises grew almost 30 percent. The catalyst for the revitalization in fitness can be summed up in one word: Contours Express, another women-only fitness franchise, more than doubled its unit count, growing from 51 to 111 units in the past year. Jazzercise Inc., a dance fitness program founded in 1977, gained nearly 400 franchises last year.
New systems have also emerged to meet specialized fitness needs. With five franchised units in this year's listing, Velocity Sports Performance works one-on-one with athletes of all levels to improve their strength, power, speed, agility, flexibility and energy. Fitness Together, with 73 franchises, offers personalized, one-on-one fitness training.
Traditional fitness centers also grew. Gold's Gym, founded in the '60s, grew by 14 franchised units. "Fitness and obesity have taken center stage in the media, and people are starting to understand the necessity of exercise," says Courtney Minor, franchise development manager for Gold's Gym Franchising Inc. "All the research and news coverage is pointing to diet and exercise as the only real answer, and that leaves gyms at the center of any short- or long-term solution."
|Now and Then|
|What a difference 25 years makes. Take a look at how the top five franchise categories (based on the number of operating franchise units) have changed over time.|
5. Business Services
5. Chrildren's Businesses
|SOURCE: Entrepreneur's Franchise 500� (1980, 2004)|
Income tax preparation services have been around for years, so who would expect them to be one of the booming franchises in 2004? But it's true-financial-service franchises are one of the hottest sectors in franchising today.
Maybe the increasing demand for tax franchises can be attributed to "the explosion of information technology and the ever-increasing complexity of tax law and filing," says Stephen J. Spinelli, director of the Arthur M. Blank Center for Entrepreneurship at Babson College in Babson Park, Massachusetts. "Franchisors can share the information and build economies of scale in understanding the law. They have this great source of franchisees who have been trained in the business environment."
It's not the sexiest field, but these franchises are still finding new franchisees and customers lining up for more. Jackson Hewitt Tax Service has more than 3,700 units, and Liberty Tax Service added more than 400 units last year.
Though this category of franchises has been in our Franchise 500Ã¯Â¿Â½ for only a couple of years, two of the four business-consulting franchises that are ranked have already made it to our top 100 list. As a whole, the category grew 69 percent between 2002 and 2003. This growth in business consulting "is a specialized response primarily driven by small businesses that don't have anywhere to turn, realize they may have a need and don't know whom to contact," Hockett says.
The Alternative Board TAB, which added 20 franchises last year, facilitates peer advisory boards and provides individual coaching to its members, who are owners, presidents or CEOs of privately owned companies.
"It's a great time for business consulting franchises," says Jason P. Zickerman, executive vice president and COO of TAB, "because many companies have downsized and would rather outsource to consultants than add to their payroll."
Following the lead of Sally in When Harry Met Sally, consumers want things, well, the way they want it-even ice cream. Enter specialty ice cream chains like Cold Stone Creamery, which allow customers to blend ice cream with fruit, candy and other items of their choosing.
Cold Stone Creamery currently has 423 franchised stores, up from 261 in last year's listing. "Our recipe of fresh-made ice cream complemented by any variety of mix-ins has resonated with consumers," says Kevin Donnellan, communications manager for Cold Stone Creamery. "We allow our guests to personalize their desserts."
Anyone who thinks Starbucks is the ruler of the universe hasn't seen this year's Franchise 500Ã¯Â¿Â½ listing. It includes 12 coffee companies, seven of which started franchising in 1999 or later.
Up-and-coming coffee companies offer customers their own unique twist on that old cup of joe. Seekers Coffee House, a new concept with one franchised unit, is more than a mere coffeehouse-it's a food-service, catering, retail and performance venue. Jo to Go The Drive Thru Espresso Bar, with four franchised units, is a drive-thru offering coffee drinks, smoothies and baked goods. It's a Grind, which added 17 franchised units in the past year, is a neighborhood coffeehouse with a jazz flair.