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Technomic: Ensuring franchisee profitability leads to rapid growth

Restaurant chains aiming to expand national footprintsthrough franchising should continually focus on the unit economics within the footprint of each store, according to the Top 100 Franchisor Restaurant Chain Benchmarking Report.

November 11, 2015

Restaurant chains aiming to expand national footprints  through franchising should continually focus on the unit economics within the footprint of each store, according to the Top 100 Franchisor Restaurant Chain Benchmarking Report, a new study from Technomic.

This increasingly profitable business model will entice growth-minded franchisees with an increasingly profitable business model, and the industry's fastest-growing brands are doing precisely that, said Darren Tristano, executive vice president at Technomic.

Slightly less than half of the 100 largest restaurant franchisors boast a sales-to-investment ratio at or above the report's average of 1.4, and collectively they increased unit count 3.3 percent in 2014, the report found. By contrast, the remaining brands with below-average sales-to-investment ratios only managed unit growth of 0.9 percent. That dynamic will remain a key trend for the restaurant industry, which has pivoted aggressively to franchise-led growth via development deals and refranchising agreements with operators able to fund new locations and remodels of existing restaurants.

"The fast casual sector and standout quick-service brands like Chick-fil-A certainly have compelling appeal for consumers, but this report is able to show the leading returns on investment they provide to franchisees and quantify that factor's role in some chains' high-octane growth," Tristano said. "What franchisors offer their operator partners is just as important as what they offer their guests. Our latest study shows a strong correlation between ensuring franchisee profitability and expanding rapidly."

The report compiles franchise sales figures and key investment numbers—such as fees, royalty structures and average buildout costs—to calculate a sales-to-investment ratio for the largest brands in the restaurant industry. New industry insights from the report include:

• Fast casual brands tracked in the study boasted the best collective sales-to-investment ratio of all restaurant segments, with 1.7, compared to only 1.1 for QSRs
• The franchisors ranked in the Top 100 report collectively increased their unit count 2.3 percent in 2014, better than the 2.1 percent growth for all brands in Technomic's Top 500 Chain Restaurant Report
• Chicken-focused brands are among the most formidable franchise opportunities in limited service, as the sales-to-investment ratios for the chicken category were the highest of any subsegment in either quick service (1.7) or fast casual (1.9)
• Despite higher average unit volumes and focused menu offerings, specialized casual dining chains like Outback Steakhouse and The Melting Pot collectively produce the same sales-to-investment ratio, 1.0, as varied-menu and bar-and-grill brands like Applebee's and Chili's.