Why Food Franchises Remain Successful Despite Economic Obstacles

It’s no secret that food franchises are often the most searched for and requested on franchise directories and portals. It’s what we all think of when someone says “franchising.” Despite the popularity of food franchises– the how is that sector of the industry doing?

 

Why do I ask? Well, maybe you heard of this little thing called “The Great Recession” and, in its wake, the tightening of our collective belts. How have food franchises fared? Has development for food franchises slowed? If not, how is that possible when food costs have risen and disposable income has decreased for most families?

 

Fast-Casual Food Franchises Are On the Rise

 

Research suggests that fast-casual franchise restaurants, which are a subset of quick-service restaurants, rank as one of the five best franchises to open due to high demand. Presumably as a result of the Great Recession, consumers are concerned with maximizing their time and money when it comes to eating out. Eating establishments that are less expensive but still allow consumers the ability to escape the kitchen and feel as though they’re treating themselves.

 

The number of quick-service restaurants are expected to grow 1.7% in 2013, the third largest growth percentage according to the International Franchise Association.

 

The Franchising is On the Rise– How? Why?

 

A recent study by the IFA shows that the number of franchise establishments increased by 1.5% last year.

 

Why? How? Simply, the economy is why and how.

 

Unemployment and underemployment (taking lower pay and lower-level jobs) are still unfortunate realities for the U.S.’ economy. As such, more Americans are mindful of their spending. Dinners at high end dining establishments have become increasingly rare. In addition, many individuals and families are working multiple jobs or longer hours resulting in a need for fast, inexpensive meal options– especially if you’re traveling between places of employment. This increased demand for quick-casual and quick-service establishments (think Panera and McDonald’s respectively) has permitted the franchise industry a growth coveted by many other economic sectors.

 

Exiled corporate executives and those who lost a substantial portion of their savings due to the Great Recession face the unfortunate reality of a shortened or no retirement at all. In order to earn a living, many entrepreneurs have chosen franchises as a means of business because of each concept’s proven track record.

 

What’s Behind Rising Food Costs?

 

Despite a reputation for quick and inexpensive meals, franchises are facing rising food costs because of four important reasons: increased fuel and transportation costs, reduction of food availability, and a continuation of economic circumstances that created 2011’s food price inflation.

 

  • The U.S. government’s subsidization of corn for bio-fuels has removed substantial amounts of the grain from the food supply, increasing overall prices.
  • The World Trade Organization limits the amount of stockpiling the U.S. and the European Union may do of corn and wheat in case of extenuating weather circumstances. As such, the price of corn and wheat remains volatile. (Note: wheat prices in 2011 more than doubled.)
  • As more of the global population becomes affluent, the demand for meat increases. In accordance with this demand, the need for animal feed– primarily grains– increases driving up the cost of both items.
  • The increase in oil prices means high food prices, as much of our food isn’t grown locally but shipped across oceans and nations.

Read more:

Why Are Food Prices Rising?, About.com

5 Best Franchise Opportunities For 2013, TheStreet.com

As more entrepreneurs pick franchising, sector grows, Charlotte Observer

Five Reasons Why Owning Your Own Business Should Be One of Your New Year’s Resolutions

You made it! The Mayans were wrong, your family didn’t drive you completely crazy during Christmas and civilization endures. But, there’s another hurtle left to jump: your list of resolutions for 2013. As the number of remaining days in 2012 shrinks, it’s time for you to consider your future…

 

Will 2013 be the year you (finally) learn to love kale and embrace the treadmill? Is this the year you start– and finish– all of those DIY projects? A year from now, as you reflect upon the past 12 months, will you pat yourself on the back because you did what you finally promised yourself you would do: start your own business and become your own boss?

 

Or, will you let 2013 be a carbon copy of 2012?

 

(The correct answer is no.)

 

If you plan on making 2013 your best year yet (and one of financial independence) owning your own business needs to top your list of new year’s resolutions, and here’s why:

  1.  THE FISCAL CLIFF: Despite what you’ve heard or read, the majority of small business owners aren’t so doom and gloom about the fiscal cliff/slope/precipice as you might think. As the backbone of our nation’s capitalist society, small business owners know and live the value of progress and forward movement. They’re unafraid of putting their shoulder to the wheel and know that no matter what happens, they’ll make it work.
  2. FUNDING: Traditional SBA-backed loans remain a touch-and-go source of funding for small businesses. Some find traditional lending to be the best and easiest way to raise capital. For others, banks are unwilling to loan for whatever reason.  As a whole, banks say they’d like to make more loans but it seems that many have upped their standards due to regulatory pressure. Regardless, securing a loan is definitely possible.
  3. YOU’RE A VETERAN If you’re a military veteran you are in high demand– especially in the franchise industry.  Many franchises are so pro-veteran they’re only recruiting veterans to become franchisees, like J Dog Junk Removal
    . Often, veterans are offered significantly discounted franchise fees, financial incentives and mentorship opportunities “regular” franchisees don’t receive. As an added bonus, Sprigster’s “Boost a Hero” program is specifically designed to help veterans and their spouses become franchise and small business owners through crowd-funding.
  4. YOU’RE A FORMER CORPORATE EXECUTIVE OR SMALL BUSINESS OWNER: Exiled or retired corporate executives and former small business owners make excellent franchisees. Franchisors are always keen to recruit those with business experience, especially those with an entrepreneurial spirit and previous management training.
  5. THE CURRENT PREDICTIONS FOR 2013: Again, despite what you may have heard, the franchise industry is yet again poised for growth unseen by most other industries since 2008. The number of franchise establishments is expected to increase by 1.4 percent in 2013, from 746,828 to 757,055 with the number of jobs increasing 2 percent, reaching 8.262 million, according to a study by the IFA’s Educational Foundation. In addition, the same report also projects the gross domestic product of the franchise sector to increase 4.1 percent in 2013 to $472 billion.

 

So, what will it be? Learn which franchise or business opportunity is right for you.

The Top 10 Menu Trend Predictions for 2013

According to Pantone, the “it” color of 2013 will be emerald green. But that’s not the only trend worth considering– what about the “it” menu items diners are sure to see on their menus next year?

 

A survey of over 1,800 professional chefs produced the National Restaurant Association’s list of top ten menu trends for 2013. The top ten list indicates that consumers have four things in mind: cost, where their food comes from, gluten and their kids.

 

Consumers remain concerned about food costs while eating out, as suggested by the prediction that new cuts of meat will continue to appear on menus. These new cuts of meat, like the Denver steak, are lesser-known and less expensive but have become more popular as tough economic times have eaten into consumer’s disposable income.

 

The locovore movement continues to grow as more diners look for locally grown produce, locally raised meat, and sustainable seafood. Thanks to the popularity of cooking shows, food magazines and the rise of the celebrity chef, consumers are increasingly aware of how food appears on the dinner table– and they want it to be in an environmentally conscientious manner.

 

Gluten-free items began appearing on menus a few years ago– thank you Miley Cyrus– and, if anything, have increased in number and popularity. Pizza franchises like Domino’s offer gluten-free crusts in an effort to include those who have Celiac disease or a gluten sensitivity.

 

Many of the top trends carried over from last year, including children’s nutrition and locally sourced produce.

Do you think the predictions for 2012 proved to be true? Do you think 2013’s top ten list is missing a trend?

What Franchises Need to Know About Satmetrix

What to do when your customers go from engaged to enraged.

 

The advent of social media has ushered in a new customer service paradigm. Interactions between a business and its customers — positive or negative– are now part of a company’s narrative thanks to platforms like Facebook and Twitter.

 

For businesses, this presents an opportunity to engage with its customer base and obtain feedback on its products and services. Under normal circumstances, this is a good, even great, thing. But, when a customer turns from engaged to enraged, a business is often caught off-guard, especially if a customer chooses to vent his or her frustration publicly. An angry customer is a scary thing; an angry customer on Twitter or Facebook is terrifying.

 

Dissatisfied customers present a unique challenge to franchises. Negative feedback expressed publicly can not only tarnish the reputation of the local outpost, but also influence a potential customer’s perception of the brand overall. As Forbes reported earlier this year, “when you make a decision to choose one brand over another, you’re influenced more by the company’s reputation than any particular product it offers.”

 

So how do you manage your reputation, keep your customers happy, and protect your bottom line? Satmetrix has a suggestion: put your net promoter score to work.

 

There are three types of customers: promotors, passives, and detractors. Customers that support and advocate for your brand are promoters. Those that support your business but aren’t telling their friends and family about you are considered passives. Customers that speak out against your business due to a poor experience are labeled as detractors. A brand’s net promoter score is calculated by subtracting the percentage of detractors from the percentage of promoters and provides a company with a numeric indication of its customer base’s level of satisfaction.

 

Traditionally, a net promoter score was calculated through surveys, which have become so ubiquitous they’re ineffective. Fewer and fewer customers care to respond to surveys because they get so many. Spark Score, a program from Satmetrix, surveys what customers are already saying by sweeping the Internet and social media.

 

At this point, the folks at Satmetrix decided to go a step further. After the net promoter score has been calculated, more questions are asked. In doing so, Satmetrix is able to draw a correlation between the net promoter score and what’s causing a customer to recommend your brand or, in some cases, to not recommend your brand. The goal is to identify the moment that franchises (and other businesses) are dropping the ball in order to fix the underlying error, improve overall customer relations, and ultimately win customers back.

 

A recent study performed by the Gallup Business Journal indicates that bringing on new customers is about emotion, not price or product. It costs more money to woo a new customer than it does to keep an existing one. In addition, satisfied existing customers spend an average of 2.6 times more than one that’s relatively satisfied and 14 times more than one that isn’t satisfied.

 

In the graph below, total revenue is represented by the total sales from passive and promoter customers in a nonexistent company. Total potential revenue represents the total sales from promoters, passives, and detractors who have returned as passive customers after having their customer service issues resolved. On average, the difference between the total and total potential revenues each month is $9,333.

 

The way Satmetrix has designed their program gives franchises the ability to assign each customer type a value, placing into perspective the real cost of a dissatisfied customer. In the case of the nonexistent company above, one detractor equals 2.6 passives and 1 promoter. So, when you lose a customer due to a poor customer service experience, you may need two customers to make up the difference in lost revenue.

 

At the end of the day, it’s more than the loss of a customer and sales; a detractor also has the ability to turn potential clients into detractors before they’ve even become a paying customer. When you’re looking to try a new restaurant or need help mowing your lawn you turn to family members and your friends for recommendations. The same applies to every business.

 

Satmetrix hasn’t stopped at creating a better net promoter score or helping companies assign a value to each customer type. With Satmetrix, sales teams can respond to customer service emergencies in real-time, assuaging a dissatisfied customer’s frustrations before they’ve said sayonara and been welcomed with open arms by a competitor. It’s also at this point that Satmetrix can help companies identify exactly where they’re going wrong in the sales process. As Carol Tice of Entrepreneur magazine points out, two of the best ways to keep angry customers from storming out and never coming back are reaching out via social media and fixing the broken policies.

 

What Does the Affordable Care Act Mean For Franchising?

Last Thursday, The Supreme Court ruled the Affordable Care Act as constitutional. In the days that have followed, some have rejoiced in victory and others have contested the ruling in anger. However, everyone is asking one salient question, “What does this mean for my future healthcare costs?”

 

If you’re a small business owner (which includes franchises), you’re probably particularly concerned with the potential added costs of the Affordable Care Act. Do you have to provide healthcare for your employees? If you’re an employee of a small business, you’re probably also concerned. Does this mean that you’ll lose your job? Or, will you be asked to work part-time hours so your employer can opt out of paying for your health insurance?

 

First of all, here’s a breakdown of what the law requires. For more detailed information, head here.

 

  • If you own/operate a business that employs 50 workers or less, you will not be required to provide healthcare coverage because you are considered a small business by the Affordable Care Act.*
  • If you own/operate a business that employs more than 50 workers, you will not be required to provide healthcare coverage. However, beginning in 2014, employers that do not provide adequate health insurance will be required to pay an assessment if their employees receive premium tax credits to buy their own insurance. These assessments will offset part of the cost of these tax credits. The assessment for a large employer that does not offer coverage will be $2,000 per full-time employee beyond the company’s first 30 workers.
  • If you are self-employed with no employees, you will be required to purchase health insurance or pay a tax equal to 2.5 percent of your household.

 

Last Friday, The International Franchise Association conducted a survey of nearly 200 franchise owners, operators and executives. Asked if they’re more or less likely to hire based on how the Supreme Court ruled last Thursday, of the 200 survey participants 85 percent said they would be less likely to hire. Fifteen percent said they would be more likely to hire.

 

At a separate time but in tandem with the IFA, The Hudson Institute conducted a study that suggests 3.2 million jobs at franchise businesses remain at risk as a result of the employer mandate provision of the healthcare law.

In a recent Washington Post piece, FASTSIGNS chief executive officer, Catherine Monson, called the law “truly unworkable and unaffordable for our country’s small business owners.” Monson lampooned the Affordable Care Act, saying that it is “one of the largest tax hikes in U.S. history,” one that comes at the expense of small businesses, and will ultimately impede growth at a time when our country needs it most.

 

Just to be clear, the Affordable Care Act isn’t one of the largest tax hikes in U.S. history. Presidents Bush and Reagan both introduced tax increases larger than Obamacare.

That said, the law does include a number of tax hikes:

 

  • $27 billion : the amount the individual mandate will raise during the next decade.
  • $30 billion: the amount the tax on unusually expensive health insurance plans will raise during the next decade.
  • $60 billion : the tax on insurance companies
  • $200+ billion : the amount the largest tax increase in the law comes from high earners, who will see Medicare payroll tax increase by 0.9 percent

 

“Bottom line: the law will deter growth by unintentionally discouraging franchisees from owning and operating multiple locations, creating a competitive disadvantage for our franchisees who do own more than one or two locations (and who may want to open additional stores), and barriers to entrepreneurs who are looking to capitalize on the franchise business model to grow their business and hire more workers,” writes Monson.

 

What do you think about the Affordable Care Act? Is universal healthcare something that the United States needs to embrace? Or, is it a hindrance to job growth?

 

*If you own/operate a small business that employs 25 workers or less, you will not be required to provide healthcare coverage. However,  the government offers subsidies for small businesses with less than 25 employees who make less than $50,000 annually. A tax credit to defray 35 percent of the cost of healthcare will be given to for-profit companies; a credit of 25 percent to not-for-profits. In 2014, those percentages will rise to 50 percent and 35 percent, respectively.

The 10 Fastest Growing Industries In the U.S. and What That Means For Franchising

The Top 10 Fastest-Growing Industries in the United States:

1. Generic pharmaceuticals

2. Solar panel manufacturing

3. For-profit universities

4. Pilates and yoga studios

5. Self-tanning product manufacturing

6. 3-D printer manufacturing

7. Social network game development

8. Hot sauce production

9. Green and sustainable building construction

10. Online eyeglasses sales

If the above list, found on Wonkblog, is any indication, the way out of the recession is  hot sauce, green construction and whole lot of downward facing dogs. If that’s the case, then the franchise industry, which predicted a 5% growth margin for 2012, is poised for an even better end of year report.

 

Why Hot Sauce?

It seems as though not some, but most, like it hot. As a nation, our tastes are changing. The growing number of immigrants and morphing demographics of our melting pot country are causing a desire for spicy, ethnic foods.  For the past decade, the hot sauce manufacturing industry has grown at a rate of 9.3 percent per year.

 

While there aren’t any hot sauce franchises (to our knowledge) this taste for spicier food is sure to carry over in ways other than the bottle of Tobasco on your table. Mexican-inspired franchise restaurants are seeing an increase in their popularity across the country, too.

For those who like it hot, becoming a Mexican restaurant franchisee might be for you! Here are a few great options to consider.

 

Green, Mean Money Machines

Solar manufacturing and sustainable building construction, the two green industries on IBIS World’s list, can attribute part of their growth to various government subsidies. Though these subsidies are beginning to wind down, the growth rate for green industries is predicted to continue in 2012 with Solar Panel Manufacturing and Sustainable Green Building growing at a rate of 8.2 percent and 9.4 percent respectively.

 

For the environmentally conscientious interested in becoming a franchise owners there are quite a few options available:

 

Say Om

Pilates and yoga studios were highly resistant to the recession and have continued to grow as the U.S.’ economy strengthens. From 2002 to 2012, the industry grew an average of 12.1 percent per year. In 2012, yoga and Pilates studios are projected to experience a 5.1 percent growth rate.

 

A number of yoga and/or Pilates franchises are available to those interested in helping others improve their strength, flexibility and fitness levels. Though they’re not mentioned explicitly in IBIS’ report, I would imagine similar health and fitness concepts like gyms and massage franchises have experienced an uptick in their growth rates and are ripe for expansion as well.

 

  • IMX Pilates
  • Wundabar Pilates
  • Sunstone Yoga
  • Open Doors Yoga
  • Innergy Yoga
  • Bikram Yoga

AMEX Excludes Franchises From Small Business Saturday

“With every dollar we spend, we cast a vote.”

 

My economics teacher used to repeat this whenever the question of spending came up. If only it really were that simple. She was right, though, in that with every purchase we make (and don’t make) we vote businesses on and off of America’s economic island. The holiday season is a retailer’s chance at surviving the tribal council.

 

As I’m sure many of you in the franchise industry have heard, American Express (AMEX) excluded franchises from participating in Small Business Saturday this past weekend on November 26, 2011. While many are understandably upset about the exclusion of their business from AMEX’s economic initiative, the situation opens the door to several important questions, including but not limited to where franchising fits into America’s spending psyche.

 

Many blogs, articles and forums have focused how this happened and how it can be remedied next year. I’m personally more interested in why it happened. If the franchise industry can figure out what inspired AMEX to exclude an entire industry, in which many businesses in my opinion qualify as small businesses, perhaps the thought process behind the decision can be resolved as opposed to simply the situation.

 

First and foremost, while the success of fast food franchises has certainly helped the industry as a whole, it hasn’t helped the industry’s reputation as a small business job creator. The general public most likely doesn’t understand what franchising truly entails. The term “franchise” often conjures images of McDonald’s golden arches, not mom and pop independently owned businesses.

 

The term “franchise” should first make us think of an agreement rather than a fast food restaurant. For those who don’t know, the franchise agreement is made between two parties: the franchisor and the franchisee. The franchisor lends his trademark or trade and accompanying business model to the franchisee who in turn compensates the franchisor with a royalty fee, and often an initial fee, for the right to do business under the franchisor’s name and use of the business model. In some cases, but not all, the franchisor takes responsibility for creating marketing materials and implementing marketing strategies to further the success of the franchise. That being said, marketing isn’t free and may factor into the franchise’s royalty fee.

 

Aside from the extraneous fees, franchises aren’t so different from small businesses. They are are owned and operated by the same kinds of people as small businesses. They serve and employ the same local residents. Lately, they’ve been facing the same economic challenges. It’s understandable why so many franchisees and franchisors are upset.

 

We’re all, consumers and businesses alike, pinching pennies right now. There certainly isn’t much profligate spending happening this holiday season. The Wall Street Journal hinted that only 29 percent of small businesses are able to give year end bonuses this year. As I said before, every dollar we do or do not spend really matters.

 

From what I’ve read and heard, marketing has been another issue within the franchise exclusion situation with AMEX. AMEX’s Small Business Saturday offered $25 dollar credits to shoppers who shopped at qualifying establishments, those independently owned and operated businesses that don’t have the budget for national marketing campaigns. These credits didn’t extend to those who supported chains or franchises during Small Business Saturday.

 

Then again, it’s an understandable mistake. For those of us who are part of the franchise industry that may be difficult to digest. While we recognize the hard work and long hours franchisors and franchisees put into their respective roles, many outsiders can’t see beyond the brands and logos we have pushed to make mainstream.

 

It is my hope that next year AMEX helps the franchise industry’s small business owners financially by including them in Small Business Saturday. I also hope AMEX helps the franchise industry’s reputation by putting a Main Street face on mainstream logos, so everyone, including industry veterans, remembers who’s behind the cash registers and counters.

 

 

Check Yourself Before You Wreck Yourself: Emotional Contagion In the Workplace

On October 14, 2003, Steve Bartman was escorted by ballpark security from Wrigley Field. He wasn’t a rowdy fan nor had he started a fight. He had innocently reached for a foul ball hit down the third base line and disrupted a potential catch by Chicago Cubs outfielder Moises Alou, embroiling Bartman in a terrible case of mass emotional contagion.

Emotions are contagious—hang around a smiling, happy baby and you can’t help but smile yourself. Spend time with an anxiety-ridden person and you’ll find yourself biting your own nails and tapping your toes. Emotional contagion is the tendency to catch and feel emotions similar to those around you. It’s been around since before our ancestors invented the first language.

When Moises Alou’s potentially game-making catch was ruined by Bartman’s attempt to snag a foul ball, Alou understandably reacted with extreme frustration, anger and contempt. He threw a tantrum on the field yelling at the fans, at Bartman, slamming his glove down on the ground and angrily gesturing at the crowd.

The brain’s Mirror Neuron System (MNS) interprets the body language, pupil movements, vocal tones and facial expressions of those around us. In turn, we begin to mirror those same sentiments with our own physical and facial movements. When Moises Alou reacted as he did, even those who couldn’t hear or see him but heard the description of his reaction began to mirror his sentiments and direct them, too, at Bartman. As a result, the normally friendly Chicago Cubs fans became an angry mob.

For the remainder of the game, Bartman endured jeering from those within and outside of Wrigley Field. The crowd chanted derogatory names, threw pretzels, hot dogs and beer at the Cubs fan shouting, “We’re gonna kill you!” as he was eventually led from the ballpark by security.

But what if Moises Alou had controlled his temper? Instead of being angry for a period of minutes, what if he’d shown his frustration and then visibly moved on, refocused on the game?

Whatever the reason, we’ve all experienced moments of duress, stress and negative emotions at work. Sometimes we breeze through the tough times. Others, we become mired in a negative funk. Like a junkyard dog that couldn’t leave an open can well enough alone, our noses are stuck and all we can do is wait for someone to help us.

Unfortunately, negative emotions are easy to catch. That’s why it’s important to learn to be aware of how you’re acting and what you’re saying when you’re having a bad day. You may pass it on to others. Consider how you feel if the boss scolds you or if you’ve had fight with a coworker. Your feelings become a distraction and you’re less productive.

To combat the blues, “You don’t need to try to feel positive,” says David R. Hamilton, PhD. “Just recognize that your body language and facial expressions reflect mood, so use these as tools.”

“Lift your shoulders back, breathe deeply and easily and smile if you can. With any luck, [the MNS of the coworker] will be able to mirror you,” says Hamilton.

After Moises Alou’s temper tantrum in left field, shortstop Alex Gonzalez misfielded the ball (a rare thing for the Cubs player). Had Gonzalez properly fielded the hit, the Cubs could have ended the half-inning with a double play still ahead by two runs. Instead, the focus remained on Steve Bartman as fans became more and more agitated.

The focus had completely shifted; distracted by their rage, anger, disappointment and anxiety the players and the Cubs fans directed a portion of their energy at Steve Bartman, instead of where it should have been: the game. The Cubs lost the game 8-3 to the Florida Marlins, who went on the win the world series that year.

The next time you’re angry, anxious or just not having a good day, remember how you’re feeling will spread to those around you. Though it may be unintentional and completely natural, it can still steal the show.