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Since franchising began taking off in the mid-1950s, therehasn't been a dull moment in the industry. Although franchisinghasn't been without its share of ups and downs, most analystsagree the industry is blooming-and is headed for even greenerpastures.
That's due, in part, to years like the past one, when therewas so much growth and innovation in franchising that the worldcouldn't afford to take its eyes off the industry for a minute.Combination franchises. International expansion. Large,well-established companies jumping on the franchise bandwagon. Youname it-last year franchising had it.
And did you expect anything less from an industry whose 540,000franchises ring up sales of $758 billion annually? Franchising ismost certainly a force to be reckoned with.
History In The Making
In 1995, franchising was marked by at least one trulyearth-shattering first. Franchisees were permitted to attend theWhite House Conference on Small Business in June after beingbanished from the previous two conferences in 1980 and 1986. Of2,000 total attendees, the 137 franchisee delegates may have beenrelatively small in number, but they managed to get two importantmeasures onto the conference's list of 60 finalrecommendations.
One measure would give franchisees more latitude on the issue ofwhere to conduct mediation, arbitration or litigation with theirfranchisors; the other was a recommendation that would establishminimum standards and give franchisees more rights. Andrew Selden,a Minneapolis franchise attorney, says the conference was amilestone because "it elevated franchising to a much morevisible position in the American economy."
Selden says another major milestone, which took place lastAugust, was the Kodak case, in which a jury awarded more than $20million to franchisees. In the lawsuit, the plaintiffs claimedKodak attempted to monopolize the market that serviced its ownphotocopiers. Selden believes this could have broad implicationsfor certain franchise systems. In the future, he says,"business-format franchisors that attempt to monopolizeaftermarket supply arrangements in their system could be liable forviolation of federal antitrust laws."
What's In Style
Most franchise watchers agree that one of the biggest industrytrends is the internationalization of American franchise systems.It seems overseas markets are more ravenous than ever for Americanproducts and services. From fast food to business-to-businessservices, American franchisors are leading the way in franchising,showing other countries how it's done.
"International expansion is so attractive because manycountries are willing to pay substantial amounts for the use of aWestern trademark and the training and knowledge that go withit," says Edward Kushell, president of Los Angeles-basedFranchise Consulting Group.
Many experts believe the success of U.S. franchises overseas canpave the way for the further success of American companies ingeneral. "American marketing practices are expanding aroundthe globe and competing aggressively with European and Japanesebusinesses," says Selden. "The leveraging strength offranchising will give [other] American companies a real advantagein penetrating underdeveloped markets around the globe."
In addition to marketing their products and services overseas,U.S. franchisors are also seeking new avenues of distribution athome. Dual-branding, convenience stores offering branded franchiseproducts, and combination franchises are part of another sizzlingindustry trend. Increasingly, noncompetitive franchisors arepairing up to offer their complementary products. Retail coupleslike coffee shops and bakeries are gaining popularity among afickle crowd looking for as many options as they can get.
Proving what smaller businesses have long known-the power offranchising to grow a company-a few corporate powerhouses joinedthe franchising ranks in 1995. Among them were language servicescompany Berlitz, financial services giant Dun & Bradstreet andhealth-club chain Bally Total Fitness.
Crystal Ball
So what do franchise experts predict for 1996?
Don DeBolt, president of the International FranchiseAssociation, foresees a continuing explosion of combinationfranchises. DeBolt also expects the popularity of nontraditionallocations-such as stadiums, department stores, airports andmilitary bases-to grow as domestic markets become even morecrowded.
Selden believes there's always going to be opportunity atthe fringes of market segments. "For some [franchisors], thereally significant growth opportunities are going to come fromoutside their traditional markets, either in new distributionchannels or in trends like coffee and bagels," saysSelden.
Franchising will not likely see the passage of significantlegislation in the months to come. Kushell, who feels franchisorsshould self-police, points out that the Republican Congress"is more laissez-faire in their thinking, business-wise";he believes this will work in franchising's favor in the longrun.
Selden takes a longer view of the legislation issue. "Thetrend of chipping away at the problem of establishing minimumstandards of fairness in franchising will continue in 1996,"he says. "Sooner or later, franchisors [will] figure outit's in their best interest to get reasonable legislationpassed. It makes their franchises better-lookinginvestments."
Whatever lies ahead for franchising in the legislationdepartment, the industry is thriving overall, and if you ask thosein the trenches, that's all that matters. With socioeconomicchanges continuing to create fertile ground for franchising,Kushell says, "franchising is innovative and creative. I thinkit's going to go on and live a long and wonderfullife."
Rising Stars
What are the hottest franchises going to be offering?Following are our picks for 1996. And although you may have seenthese ideas around in some form or another, we give you tips on thenewest ideas that should keep these concepts at the top.
Bagels: They may be old news in some cities, butthey're still selling strong-and there are plenty of marketsthey haven't yet penetrated. One key to success is offeringmore than just breakfast. Look for a franchise that keeps salessizzling all day long with lunch offerings as well.
Pretzels: Here's something to twist and shout about:Auntie Anne's, a soft pretzel franchisor in Gap, Pennsylvania,estimates a 1995 sales increase of 40 percent over 1994. Softpretzels are taking the nation by storm, and the market is far fromsaturated. With consumers hungry for these low-fat treats, pretzelfranchisors should enjoy growth far into the future. The latesttwist: pretzels in a variety of shapes and flavors.
Specialized staffing: Franchises that offer temps with adifference are staffing their way to success. In addition totraditional office workers, companies that supply specializedemployees such as accountants, lawyers and even physicians are indemand. An up-and-coming trend: companies that can provideblue-collar temps such as manufacturing and factory workers.
Home health care: Insurance companies are looking forways to cut costs-and home health-care franchises seem to havefound the answer. Providing care for people with disabilities,newborns and their mothers and others who need medical care butdon't need to be in a hospital setting, home health-careagencies are taking care of business. And with increasing numbersof the nation's population entering their golden years in thenext decade, senior care franchises will be an especially hotsegment of this market.
Contact Sources
Franchise Consulting Group, 1888 Century Park E., #1900,Los Angeles, CA 90067,
(310) 552-2901;
International Franchise Association, 1350 New York Ave.N.W., #900, Washington, DC, 20005, (202) 628-8000;
Andrew Selden, c/o Briggs and Morgan, 2400 IDS Center, 80S. Eighth St., Minneapolis, MN 55402, (612) 334-8485.
