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Food and beverage: grab a slice of franchising’s most popular sector

Insight

Food and beverage: grab a slice of franchising’s most popular sector

Food and beverage franchises have been a mainstay for decades, but this ever-present industry is anything but static

Food and beverage franchises have been a mainstay for decades, but this ever-present industry is anything but static.

It wouldn’t be a stretch to say that the food and beverage industry remains the driving force behind public awareness of franchising. While the business model arguably got started with Benjamin Franklin’s pioneering printing business in 1733 (in the U.S., at least), most consumers are familiar with the franchise industry due to those famous golden arches.

This shouldn’t come as any surprise, as the quick-service restaurant (QSR) segment of the American franchise industry, which includes the likes of McDonald’s, Wendy’s, and Burger King, remains the largest. QSRs bring in over $250bn in the U.S., which dwarfs even the second-largest segment, business services ($100bn).

Everybody’s lovin’ it

With so many other options for investment when it comes to franchising nowadays, why do food and beverage concepts remain the most popular for entrepreneurs? The answer could be intimidatingly complex, but as its core, it’s very straightforward: people need to eat.

Not just eat, mind you, but eat when and where they want to. The food delivery market, expected to be valued at around $200bn by 2025, according to Forbes, is changing the way franchisors approach consumers. Cloud kitchens are on the rise, and businesses that fail to jump on-board the delivery train risk being left behind.

“This is an industry replete with mouth-watering possibilities”

The biggest players in this space are Grubhub and Just Eat; the former accounting for one-third of the global food delivery market share, with the latter having a presence in eight countries, and an 83 per cent share of the U.K. market.

Leading names in the food and beverage franchise space are taking notice of this shift, too. Yum! Brands, the parent company of KFC, Pizza Hut, and Taco Bell, bet big on delivery when it acquired a $200m stake in Grubhub in February 2018. And this isn’t just an American-based cultural shift; in India, online food orders worth $1.7bn were placed in 2018 – a figure that was expected to climb to $3bn in 2020 by RestaurantIndia.

Ben Harris, client services director at CBA London, a strategic design agency, said of delivery: “[Everything] points to a 24/7 convenience that is powered by technology, with Gen Zers viewing convenience as a necessity rather than a luxury. This move to hyper convenience is also altering our living environments, with British kitchens shrinking by 13 per cent since the 1960s, reflecting our desertion of traditional meal preparation.”

Kentucky Faux Chicken

Meat-free is a defining trend in the industry, and one which even the biggest players are wholly embracing. KFC Netherlands recently trialed going completely vegetarian, as one store in Rotterdam replaced all of its chicken with Quorn in order to celebrate the country’s Week Without Meat. This comes off the back of the chicken franchise’s launch of its vegan burger back in January, with KFC selling one million chicken-free burgers in the month since launch.

The power of plants

Delivery isn’t the only priority for food and beverage franchisors as a new decade gets underway; vegetarian and vegan diets should also be catered to, as these lifestyles are dictating what thrives and what fails more than ever. Around 3.5 million people currently identify as vegan in the U.K., and in the U.S., consumers spent more than $3.3bn on plant-based foods in 2018, according to the Plant-Based Foods Association.

Even notable celebrities are jumping on the bandwagon, with Formula 1 driver Lewis Hamilton recently launching his vegan franchise Neat Burger in London, which has plans to expand to 14 units across Europe, the U.S., and the Middle East over the next two years.

It’s easy to be green

Dietary preferences are just one of several requirements that modern consumers have when it comes to where they’ll go to eat. Sustainability and transparency are also key, and brands like MAX Burgers, which presents itself as the world’s first ‘climate positive’ burger franchise by planting trees to outweigh the impact it has on the environment, are reaping the benefits.

“Customers want to know where their products come from”

“Customers want to know where their products come from,” said Ian Roberts, managing director at KellyDeli, the parent company of fast-casual sushi franchise Sushi Daily. “They want to know how they’re made and sourced, and they want to know that the brand is caring about the world that we live in.”

If you can’t handle the heat…

It’s easy to get wrapped up in the proliferation of food and beverage franchises and assume that opening a new location of a popular brand will guarantee success. While the industry is consistently thriving, it’s important not to lose sight of the potential pitfalls and roadblocks that need to be overcome.

For example, restaurant franchises don’t come cheap. Dunkin’ requires prospective partners to have a minimum $1.5m net worth, and $750,000 in cash reserves. Wendy’s, meanwhile, requires $500,000 in liquid assets.

There’s also the need to open multiple locations; something many large food and beverage franchisors require. Pizza Hut and Taco Bell require a minimum of three new restaurants, while Dunkin’ only offers opportunities to investors who can open five new locations at a time.

As well as the hefty initial investments, food and beverage franchises also come with labor challenges, high turnover, and relatively low margins – all of which could eat into your bottom line.

If you can deal with all of the above, though? This is an industry replete with mouth-watering possibilities.

ABOUT THE AUTHOR

Kieran McLoone is the deputy editor for Global Franchise.

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