The Future Of Franchising . . . Today! Five trends that will carry franchising into the 21st century

It is the question most asked by small-business investors:"What's hot in franchising today?"

Everyone knows a franchising success story; they have becomepart of our cultural history. Ray Kroc and Colonel Sanders long agoelevated the idea of franchise success to the level of popularmyth. Not only were they spectacularly successful in creatingMcDonald's and Kentucky Fried Chicken, respectively, they alsomade millionaires of the hundreds of people who invested early intheir promising franchising programs.

But what in franchising is new and hot now? And how does someoneinterested in the special advantages of owning a franchisedbusiness find the programs that are new and promising?

Define Your Own Success

Of course, the answers will not be the same for everyone.Franchising is not an industry; it is a method of distribution. Themethod is used in as many as 60 industry classifications, fromrestaurants to automotive services, and new concepts are arrivingon the market every week. There is no uniformity to the level ofinvestment across those industries, so what constitutes a hotfranchise for you will depend to some degree on your financialresources, your region of the country, your areas of interest, yourworking circumstances and the profit potential of the individualfranchise system itself.

Franchising has seen its share of trends, fads, fadeouts,pretenders and champions. What is surging today may drop from sighttomorrow, and the solid but little-known business idea in your hometown may grow to a household name in just a few years. That is partof the magic and the excitement of franchising. But for you, theinvestor, the fortunes and failures of franchising add a measure ofrisk you need to minimize.

Is buying a franchise risky? Successful franchise ownership islike rock climbing. Climbers check their equipment three times,then check it again. They are the most intense and cautious peopleyou will ever meet. Climbers reduce the inherent risks of the sportwith training and a fanatic's attention to detail in safetyequipment. Your challenge, as a franchise buyer, is to check yourinvestment equipment carefully, study the available programs andmake educated decisions about investing.

Growth Spurts

Even though, according to recent studies, franchising has cometo represent an extraordinary 40 percent of the national retaileconomy, it is still a relatively young business concept. Whilescattered pioneers like McDonald's (the grandfather offranchising) appeared in the 1950s, the concept's first biggrowth spurt occurred in the early '70s. The dominantfranchisors of that era offered retail and fast food businesses.The '70s also saw the rise of state and federal regulation ofboth franchise sales and the franchise relationship.

The second influx of franchising, which hit in the mid- to late'80s, featured the expansion of franchising into servicebusinesses. Everything from eyglasses and copy centers to realestate and commercial cleaning was franchised. Franchising tookhold in the daycare, auto detailing, diet counseling, conveniencefoodstore, retail furniture and pharmaceutical industries. As theeconomy shifted to a service base, franchising followed suit.

We are now well into the third wave of franchising, and itpromises to be a most exciting period for would-be franchisees.Following on the heels of the 1989-90 recession and theunprecedented downsizing of the large American corporation, new,low-investment franchise offerings have come to the marketplace.There are a rich array of market niche programs that allowindividuals to get into a proven business with relative ease. Manyof the new programs can be operated from home and rely heavily onthe advantages of new communications technology.

"Look for most of the growth in franchising during thisdecade to be in the service arena," says Dr. Robert Justis ofLouisiana State University, Baton Rouge, author of the leadingundergraduate textbook on franchising. "We will see a varietyof non-traditional approaches to the delivery of thoseservices.

"We are already seeing considerable growth in the deliveryof medical and at-home care services and everything else, fromwellness and fitness groups to dentistry and chiropractic services.And, of course, as the baby-boomers approach their senior years, wecan expect franchising to take root in the fertile soil of eldercare services."

Excitement for the balance of the century will be generated inthe following five franchising trends:

1. Single Product Stores. Retail businesses that are builtaround specialty products are perhaps the most visible nichedevelopment in modern franchising.

"Specialty food product businesses are not even close tosaturation levels," says Dr. Justis, "Franchises such asGreat Harvest Bread Company bakeries, which offer a specially made,fresh product at a premium price will continue to thrive in the'90s."

Great Harvest bakeries, a national, 100-unit system based inDillon, Montana, offer freshly baked whole-wheat breads, made fromMontana wheat that is milled on the bakery premises. It has emergedas an industry leader and a franchising original. The waiting listfor franchise buyers is considerable, largely because of thecompany's determined slow growth policies and selectivity inappointing Great Harvest bakery owners.

Specialty single-product franchising--pioneered, of course, byDunkin' Donuts and Baskin-Robbins and a gaggle of yogurtconcepts--has also proliferated around products as diverse andfamiliar as penny candy, soft pretzels, designer coffee, cookiesand healthy smoothie shakes.

The phenomenon is not limited to food items, however. Snap-OnTools offers a mobile dealership built around premium automobilehand tools; Perma-Glaze offers a tile glazing franchiseopportunity; and American Leak Detection has built its franchiseprogram around the unusual service of leak detection in swimmingpools and concrete slab home construction.

2. Smaller, Non-Traditional Retail Locations. The latest andmost dramatic change in franchising is "non-traditional"retail locations. Perhaps you have noticed familiar products nowshowing up in unfamiliar places. Airports, turnpikes, mall kiosks,convenience stores and outdoor festivals have sprouted smalloutlets for products usually found in free-standing retaillocations.

You pick up your luggage after a long flight, and there by thebaggage carousel is a Dunkin' Donuts stand. You stop by a Mobilservice station, and in a corner of the convenience food mart is amini-retail McDonald's.

"The secret of location selection in non-traditionalfranchising in the '90s is foot traffic," says Joseph R.Simone, former president of two national pizza chains and nowCEO/COO of Moes To Go Corporation, franchisor of Moes ItalianSandwiches shops with headquarters in Bortsmith, New Hampshire."Many business concepts are discovering an entirely newdimension of market expansion into high foot traffic locations ofall types. Anywhere Americans gather in this decade, we can expectto find some of franchising's most familiar brand names closeat hand."

Exploitation of market nooks and crannies is driven by thecontinuing expectation of the American consumer for ultimateconvenience, and by the marketers' desire to maximize the valueof a national distribution system like franchising. Retailers tendto follow the dollar, and the dollar is moving through virtuallyany high foot traffic locations, not only in cars cruising thehamburger strip.

"Small is bigger in service-based businesses," saysSimone, an early proponent of non-traditional approaches tofranchised retailing. "The Moes Italian Sandwiches program isa prime example. These shops will fit into as little as 100 squarefeet, and involve a total investment of about $40,000. Youcouldn't find franchised opportunities on this scale 10 yearsago."

According to Simone, "The '90s have created a hugenumber of very low-investment programs. With as little as $10,000or $15,000 to invest, an entrepreneur has far more choices infranchised businesses than we saw in the '80s."

This new approach holds both promise and problems fortraditional retail location franchise owners. Who will own thekiosk in the mall just down the street from their store? This willdepend upon the approach being taken by the franchisor and theterritorial protections delineated in the franchise agreement.Anyone buying a franchise in this decade is well advised to getlegal advice on exactly what territorial protection he or she isreceiving in the contract.

3. Home Delivery Businesses. The ultimate expression ofconvenience is home delivery, and franchising has perfected theconcept. Domino's pizza delivery has effectively demonstratedthe value of home delivery by its franchisees. It has grownexponentially, without sit-down retail restaurants, thus loweringthe investor's cost of getting into the business, and has ledthe way for a number of franchise systems designed to deliver toyour home everything from baby supplies to local restaurantfare.

"You can expect the trend toward convenient services in thehome to continue," says Simone. "Even the biggestfranchise systems are experimenting with ways to reach theircustomers at local gatherings or in the home. This trend will bedriven hard by our aging population, the increasing costs ofpersonal transportation, and the demands of customerconvenience."

The key to success for smaller retail locations, as forfull-scale retailing operations, is location. Finding smallerlocations with sufficient foot traffic still poses a challenge tonew franchise owners, but the right franchise system will give youthe assistance you need to choose the right location for yourbusiness.

4. Homebased and Part-Time Businesses. The hottest growth infranchising has been among those franchises that may be operated athome on a part- or full-time basis, or those retail businesses thatare designed to fit into smaller retail outlets. The trend reflectsthe enormous societal move toward homebased businesses, the desireby so many investors to supplement their income, and the growingranks of smaller investors aching to leave the limitations of theirweekly paycheck.

A new and unique franchise offering illustrates the trend.Babbitt Baseball Camps Inc. of Burtonsville, Maryland, recentlylaunched a new franchise program for the operation of summer youthbaseball day camps. The franchise fee is $1,000; total investmentis estimated to be between $3,000 and $8,000.

"We anticipated that our camp program would attract schoolcoaches and teachers who have the time in the summer to run apart-time business," says Todd Babbitt, the company'svice-president, "But we found our greatest response has beenfrom people who own their own businesses or work in flexible jobsand want to add a fun, part-time summer money-maker to theirbusiness lives."

In the arena of professional services, Priority ManagementSystems of Bellevue, Washington, offers a top-ranked executivetraining program that is run from the franchisee's home. Theabsence of office space overhead allows franchisees to get into thebusiness for a total initial investment between $38,500 and$52,000.

5. Professional Add-On Businesses. Independent professionals andtrade service providers have long understood the value of bandingtogether. Affiliation franchises offer existing business owners newmarketing punch. A real estate broker decides to affiliate withCentury 21; a pharmacy signs on with Medicine Shoppe; or a motelowner converts to a Comfort Inn. Each business adopts the totalimage of the franchisor. Similar programs exist for home repaircontractors, plumbers, optometrists, dentists and other skilledprofessionals.

Current franchise programs bring a refinement on this idea:professionals who unite for a well-packaged sideline product orservice.

For instance, The EDSA Group Inc., of Baton Rouge, Louisiana,developed a series of workshops on personal finance and retirementplanning, and has successfully delivered them to its own corporateclients. Now the company is offering a franchise to professionalfinancial planners as an attractive add-on to their basicbusinesses. The typical EDSA Group member business continues tooperate under its own name, but holds itself out as a licensedmember of The EDSA Group's training network.

One year into the program, EDSA's president, Bill Pomeroy,is enthusiastic and says he understands the demands of this newfranchising form. "A program like ours does not restrictprofessionals, but protects and elevates the image of theirbusiness."

What's Ahead

The opportunities in franchising have never been better forsavvy investors from every income level. Women are taking largerroles in small-business ownership in our economy, and franchisingoffers an many of them attractive option.

What's hot in franchising is the breadth of opportunity fornew categories of investors who are willing to step up and feel theheat.

Andrew A. Caffey is a practicing attorney in the Washington, DCarea, a former General Counsel of the International FranchiseAssociation, and an internationally recognized specialist infranchise and business opportunity law.

For More Information . . .

The Federal Trade Commission provides a package of informationabout the FTC Franchise and Business Opportunity Rule free ofcharge. Write to: Public Reference Branch, Federal TradeCommission, Washington, DC 20580. Or call: (202) 326-3128.

The American Business Opportunity Institute Inc. is a nationalinformation clearinghouse and seminar company specializing inBusiness Opportunity and Franchise investment and regulation. Formore information on the Institute's publications, programs andservices, send a self-addressed, stamped business-size envelope to:American Business Opportunity Institute Inc., c/o Andrew A. Caffey,#700, 3 Bethesda Metro Center, Bethesda, MD 20814.