By Daren Chalupiak
Deciding to open a business and become one’s own boss is an occasion worthy of congratulations. Statistics show franchises are more likely to succeed than a similar non-branded business. And as it is often said, when you buy a franchise, “you are in business for yourself and not by yourself.” That said, deciding what type of franchise to purchase is the number one question asked by investors.
The traditional view of franchising is generally thought of as fast-food or quick-service restaurants (QSRs). These would include burger shops, coffee shops, sandwich shops, etc. Full-service restaurants (FSRs) are often thought of when looking at businesses that service customers at tableside. This typical view is evolving, as more and more industry segments turn to franchising as a means of growth. Here are some emerging franchise sectors to consider when it comes to investing:
Fitness has exploded over the last few years and continues to do so. Concepts are crossing borders into new markets and becoming global companies. Fitness has seen a move away from the large ‘super’ gyms loaded with lots of equipment and classes, to a more intimate group of hyper-specific training and programs. These exclusive fitness franchises were also able to adapt during the height of the pandemic, and move to an online offering of virtual classes.
Personal services include massage, chiropractic, waxing, skin, nail, and hair care, as well as injection services such as Botox, among others. These types of personal services are all well positioned for franchising. Many of the services can utilize employee benefit programs for payment, enabling a more consistent and steadier stream of income. Many of these services also take advantage of a rise in disposable income, allowing for more growth.
Health and wellness
Health and wellness is more focused in areas such as supplements, natural foods, and a more holistic approach to living. Many of these businesses will be located in traditional brick-and-mortar locations, but more are utilizing an online offering to help supplement (pun intended) their presence.
Car care has been surging with collision and repair services leading the way. Other sectors within this segment include customization such as tinting and detailing, as well as service concepts based on fluid changes and tire services. Typically, car wash locations are found in gas stations. There are more independent locations opening with smart attractive designs and marketable names offering more than a quick exterior wash. They will detail a customer’s car inside and out and touch up paint scratches.
Food service, while the mainstay of franchising, is seeing innovation and arguably the most change over the pandemic. Food service has been and continues to branch out into more ethnic foods and uniquely specific offerings. Some of the fastest growing franchise concepts are based on Middle Eastern-style food, as well as South Asian offerings. Specific regions are also seeing hyper-sensitivity around different concepts and ideas bringing to life the local delicacies of the area, and through franchising, it allows these concepts to grow.
This growing trend is helping many brands reach new markets. Ghost kitchens bring in many different brands, all under one roof. The increase in online ordering has facilitated this to happen, as a standalone, one brand, brick-and-mortar location is no longer needed. Franchisees of one of those could diversify their offering and increase the ability to transact business as they now have an arsenal of brands.
Home services have been around for many years in the franchise industry even though it is generally thought of as a newer concept. Home services once was a catch-all where many services were done under one brand, taking the ‘handyman approach’ to things. This is changing where businesses are highly specialized and focused on one area of home care. Painting, window washing, pest control, and lawn and garden maintenance are all seeing tremendous growth. This is allowing for investors or operators to have more than one brand and multiple successful businesses that span multiple seasons. The lower investment required to get started is attractive, and makes it a strong area to look at when deciding on a franchise system.
Education has been creative with many different and unique concepts being offered beyond the traditional tutoring. These franchise systems are typically aimed at children between the ages of seven and 16. Some even extend beyond this range to include adults looking for some new skills sets. Common areas of focus are in the STEAM areas: science, technology, engineering, arts, and math. The education industry is also able to operate virtually, allowing for little interruption to the model. Education has been on the rise with the desire of many parents to help their children have the future skills they may need that are not currently offered in traditional school settings.
With the potential government introduction of subsidized daycare in Canada, one of the fastest ways to meet this could be through franchising. The industry is already seeing an increase in the number of franchised locations and expanding into new markets.
On top of these emerging markets, there are also several new trends on the scene.
Consolidator or developer
Several brands are more interested in signing what is known as a master franchisee or an area developer or multi-unit franchisees. These groups of franchisees, while similar, are different and before entering into any agreement, one must ensure they understand and have an independent legal review of the agreement. The main point is the franchisee is signing up for more than one location. A common range is three to 10 locations for a multi-unit owner, and for an area developer, 50 to 80 locations to be established over a prescribed amount of time.
Franchisors, much like franchisees, are also consolidating where more brands are being owned by one parent company even though they appear to be standalone companies. This is taking place by sector where many auto-service companies are all owned by the same parent, as well as in the food service space and others.
Where a franchisee is successful with their location, it makes sense they would want to grow. Existing franchisees are buying up locations to increase their operations. From a system administration and consistency standpoint, owning more than one location allows the operator to realize economies of scale.
The desire to have multi-unit franchisees takes a different type of person. Emerging networks hope to get as many franchisees as possible buying their franchises, but what many brands realize is that having professional individuals operating multi-unit sites is not only more efficient and drives growth, but also allows for better communication. Jumping to different industries and brands is another growth opportunity for franchisees. Caution is required if one is looking to do this outside of the franchisors’ brands as there may be restrictive clauses in the franchise agreement.
There are other notable trends affecting many businesses and franchising is not alone. The pandemic has ramped up the use and development of technology to enhance the business and to take it forward. Online ordering, curbside pick up, and delivery are now table stakes, but were not just a year ago.
Creative marketing and customer engagement are a top trend and a priority for many brands to understand their customers’ purchasing habits and patterns. The competition is fierce and the fight for customers is paramount. What franchisors will be concerned with going forward include picking the right real estate, improving operating procedures, product development, marketing, and customer engagement.
Daren Chalupiak, regional market leader with BMO works with franchisees and franchisors to open and grow their business bringing 20 years of franchise experience with exposure to numerous brands and industries.