Report: Food industry franchising profitability on the rise

According to a new report by Franchise Business Review, franchise operators in the foodservice industry are experiencing increased profitability and higher satisfaction.

Based on a survey of more than 4,000 franchisees from 84 brands in the industry, Franchise Business Review's study analyzed a range of concepts to assess the investment opportunity, pros and cons of the sector and success attributes of franchisees.

According to the study, average profitability among franchisees is up 5.8 percent year-over-year. Average profitability among Franchise Business Review's Top 40 food franchisees is 15 percent higher than the rest of the sector.

Franchise Business Review reports that the food franchise sector has also experienced a marked improvement in satisfaction throughout the past couple of years, and more than 70 percent of the franchisees surveyed said they would recommend their brand to other franchisee candidates.

"Most food franchisors are beginning to understand that satisfied franchisees are more successful and more engaged, which drives improvement at the corporate level," said Michelle Rowan, Franchise Business Review president. "The brands on our list have maintained extremely high franchisee satisfaction, and, as a result, many have experienced double-digit growth right through the recession."

Respondents said some advantages of the sluggish economy include more available real estate, lower equipment costs and more employee availability.

One disadvantage, however, is the continued limited access to capital.

Popular concepts

The pizza segment has dominated the report in past years, including in 2011 when 25 percent of the companies on the list were pizza concepts. According to Franchise Business Review, this year's research features a re-emergence of subs and sandwich concepts.

"While Subway remains the biggest franchisor in the space, brands like Firehouse Subs have emerged as major players with the highest franchisee satisfaction in the sector," the report says.

There has also been a continued growth of the burger market, with fledgling brands such as MOOYAH emerging, and older brands including Jack in the Box and Carl's Jr. upgrading their offerings to answer the increased competition.

This year's list also includes three stir fry/grill concepts, Genghis Grill, HuHot Mongolian Grill and The Flame Broiler, which underscores the growth of healthier fast casual brands.

Investment/profitability

The investment range of the top 40 concepts on the Franchise Business Review list is $30,000 to $4 million, with the median initial investment of $386,500. The amount depends on the real estate and equipment and many concepts offer a variety of locations to fit a franchisee's budget. For example, the report notes that a Dunkin' Donuts franchisee could open a non-traditional kiosk unit for about $150,000, or a full-size traditional store for more than $1 million.

The data shows franchisees' average profitability was up 5.8 percent year-over-year – or $82,033 in 2012 compared to $77,511 in 2011.

The report notes, however, that the majority of food operators surveyed (51.5 percent) earned less than $50,000 last year, and 34 percent earned less than $25,000 or lost money.

"Average financials can be misleading, as these figures lump together single-unit franchisees with multi-unit franchisees, as well as new units, with older, highly profitable units," the report says.

Pros/cons and demographics

Franchisees surveyed were asked to list the pros and cons of the business. Among the pros were:

  • Exciting;
  • People-centric;
  • Food-loving;
  • Immediate gratification;
  • Never boring;
  • Impossible to outsource.

Among the cons were:

  • Rising food costs and overall expenses in general;
  • Growing competition;
  • High employee turnover;
  • Long hours.

The Franchise Business Review report broke down the demographics of food franchisees. Within the sector, 68 percent of franchisees are males and 62 percent have at least a college degree. Additionally, 25 percent in the food industry are minorities, versus 15 percent in other industry franchising.

Franchisee satisfaction

More than 70 percent of franchisees surveyed said they would recommend their brand to other candidates – a strong indicator of job satisfaction.

The food sector franchisee satisfaction scores are about 3.5 percent lower than the overall benchmark across all industries. The biggest variance (5.8 percent) between food and other industries came in the "training and support" category, which includes two subcategories: "technology and marketing" and "promotional programs."

Franchisees rated their franchisors' use of "effective use of technology" 14 percent below the all-industry average. Marketing and promotional programs were ranked 12 percent lower than the benchmark.

Top 40 brands

Franchise Business Review surveyed nearly 4,000 food franchisees representing 84 brands and 22,516 businesses.

The top 40 franchises are: Firehouse Subs, Culver's, Auntie Anne's, Ground Round, East Coast Wings & Grill, Simple Simon's Pizza, Hardee's, Bruegger's, Papa Murphy's, Penn Station, Yogurtland, Marco's Pizza, Checker's & Rally's, Charley's Grilled Subs, Jack in the Box, Repicci's Italian Ice, Happy and Healthy Products, Zoup!, Jamba Juice, Great Wraps, Biggby Coffee, The Honeybaked Ham Co., McAlister's, Deli, Straw Hat Pizza, Genghis Grill, Donatos Pizza, Nothing Bundt Cakes, Hungry Howie's Pizza & Subs, HuHot Mongolian Grill, VooDoo BBQ & Grill, MOOYAH, Einstein Noah-Manhattan Bagel, Doc Popcorn, PJ's Coffee, Hurricane Grill & Wings, Which Wich, WOW Café & Wingery, Cheeburger Cheeburger, Quaker Steak & Lube and The Flame Broiler.

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