Setting the Trend in Franchising
Franchising is an amazing industry. There are so many elements to the business which give an insight into what’s happening in the small business world, what markets are growing or declining and what consumer trends are taking shape. Due to the nature of small business, it is sometimes difficult to have accurate data or market research because of the fragmented nature of the privately owned companies that make the market. Franchising is one way to have an eye on the small business community trends and opportunities. As industry categories pick up momentum and consumers speak with their dollars, franchise brands are born and franchise industry categories develop significant traction.
Franchise Marketing Systems is a franchise development firm, we help companies franchise their business and go to market as a franchise offering. One of the really fun parts of this work is to be able to see first hand what markets are expanding and growing enough to support franchise development efforts. If someone is franchising a business, there must be increasing trends in consumer purchasing for that particular product or service category. Maybe, in some cases, it isn’t necessarily the what, but more the how people prefer to purchase the services or products. I have been working in franchise development long enough to see some of these trends come and go and look back on the growth spurts of some and the collapse of others. I am a big proponent of entrepreneurship and hate to see anyone go out of business. So what trends do we see in the franchise market today and how can we better navigate the currents of capitalism to make better business decisions in the future?
One thing I’ve noticed in any given franchise market trend is that franchise investors like things that are new and innovative. When someone creates a business model that is really game changing and “out of the box”, people start to pay attention. Think of some of the most recent franchise trends that have taken shape in the industry. Massage, Fitness and even Pizza have all had their moments in franchising in the last decade and continue to show signs of growth. What caught people’s attention? One brand in each category that created a new system and a new way of doing things that brought life, innovation and growth to an entire category.
Massage Envy was certainly the leader and still today leads the way in the massage market. The brand accomplished this by bringing a modernized approach to the antiquated massage industry and “McDonaldizing” the business model with a membership program, strong branding and a consistent way of doing business that opened up massage to the every day person. Soon after, the growth trend started and along came a variety of massage service franchise brands, all of which experienced significant growth including Hand and Stone, Elements, Massage Heights along with others. The Fitness market is in the midst of a complete revolution started by Orange Theory, the boutique, classroom fitness brand which opened up the entire market for growth with a community-focused, trainer-led fitness service. Consumers spoke with their spending and moved away from the traditional big box gyms and into this model. Along with Orange Theory, RockBox, Title Boxing and others expanded by leaps and bounds and opened locations in strip centers around the world. Maybe the most incredible franchise trend today is the pizza market, which had been essentially stagnant for decades with very little innovation or brand development. Blaze Pizza changed this with a new way to serve pizza to the consumer, quick, convenient and almost “Subway-like”. The market went nuts and so did the franchise industry. Mod Pizza, Pieology and D.C. Pizza were all derivations of the Blaze model which benefited from this market expansion. In each of these cases, the trends remain positive and the markets continue to expand quickly creating opportunities for investors and long lines at the cash register.
But how do you analyze whether a trend is genuine opportunity or just market hype? I was in franchising when people launched the ebay drop off store market craze. In the midst of the market growth, it was hard not to get excited about the brands expanding so quickly and the technology-driven concept. Hundreds of ebay stores were opened under a variety of different brands, each of which disappeared as quickly as they opened when the consumer realized they could go right to ebay without dealing through a middleman. Frozen Yogurt recently experienced this kind of downturn after thousands of retail yogurt stores were opened. The model was fun, simple and easy to manage, it was understandable that investors jumped into the market in droves. The sad reality is that people lost a lot of money, in some cases all of their money. So what can you do to make a better investing decision and avoid falling victim to what happens to be popular at that point in time?
When making an investment decision, the age-old saying of keep emotions out of it seems to hold true here. It’s easy to get excited when everyone else seems to be running towards a “good idea”. But when investing in a business, the growth of the market and of a particular franchise brand isn’t as relevant to the success of your franchise investment as the bottom line of the actual business itself. Understand the numbers and verify that the profitability of a franchised business meets the ROI expectations you have for your investment. Next, and maybe most importantly, do the consumer research to understand what trends are supported by consumer buying habits. If you see that people are buying more of the product or service from the particular business model you are considering investing in, that’s a good sign. If the consumer market isn’t expanding as quickly as the number of franchises in the market, definitely bad. Trends are not necessarily a bad thing, but to avoid calamity, good investment decisions require level headed thinking.
Christopher Conner is the President of Franchise Marketing Systems and has spent the last decade in the franchise industry working with several hundred different franchise systems in management, franchise sales and franchise development work. His experience ranges across all fields of franchise expertise with a focus in franchise marketing and franchise sales but includes work in franchise strategic planning, franchise research and franchise operations consulting. For more information on how to choose the right food service franchise, contact Chris Conner at Chris.Conner@FMSFranchise.com