Food Franchise Industry Report (2024)

🕒 Estimated Reading Time: ~10 minutes

Food Franchise Industry Overview

The bedrock of the entire franchise industry, food franchises account for an estimated 30% of the total franchise establishments in the U.S. and nearly 60% of the direct employment by franchises. And those figures don’t even include food-related franchises that are categorized as retail instead of a quick service or table service restaurant.

Below is an overview of the major food franchise categories. Something to note is franchises can crossover between the given categories. Also, there are several sub-categories within the major categories, including ethnic variations.

Bakery Franchises: These franchises focus on certain product areas for their business e.g., bread, muffins, bagels, croissants, pastries, donuts, or other sweet goods. Several franchises in this area have menus that feature additional items as well like sandwiches, soups, etc. to stabilize income.

Coffee Franchises: The coffee franchise industry is well-developed and competitive. And there is no wonder why. Coffee is second only to water in beverage popularity in the U.S., and consumption continues to increase. Many coffee franchises have other sources of revenue—including baked goods or sandwiches.

Fast Food Franchises: With an estimated 25% of total U.S. franchise establishments across all industries, fast food is the most common franchising segment. Food production in fast food restaurants, also known as quick service restaurants (QSRs), is focused on immediate consumption. Fast food meals are commonly taken out or delivered. However, some fast food franchises offer limited on-site seating.

Full Service Franchises: Full service franchise restaurants encompass a range from casual family-style eateries to upscale restaurants. Meals from full service food franchises are typically eaten on-site but takeout or delivery options have become common across the industry, particularly in wake of the pandemic.

Ice Cream & Frozen Yogurt Franchises: The demand for frozen desserts is more evenly distributed throughout the year than it was a few decades ago. Customization has become a feature of many ice cream franchises as those franchises took lessons from the resurgence of the frozen yogurt franchise segment in the 2000s.

Juice and Smoothie Franchises: Franchises in this segment have seen a boost from the general public’s turn towards healthier food options. These franchises, particularly, smoothie franchises offer convenient treats, snacks, and meal replacements for consumers that are quick and portable.

Pizza Franchises: Quick and convenient, pizza is a food franchise niche that people can reliably depend on. Because of that dependability, pizza industry growth is not showing any signs of slowing down. And as delivery has come to the forefront as a necessary business component—not a perk—pizza franchises have been showing the way.

Retail Food Franchises: Over the past several years, the convenience store industry has challenged the other food franchise industry segments by increasing its food offerings, particularly the segments that offer quick, on-the-go items. Additional retail food franchises include liquor stores and caterers.

Vending Machine Franchises: While it is true many vending machine companies are business opportunities, there are some franchise options. The vending machine food franchise segment is a bit of a catch-all grouping with machine-featured offerings going well beyond the traditional snacks and sodas to anything from cupcakes to smoothies.

Currently Impactful Food Franchise Trends

Below are a few trends currently making a big impact on the food franchising world. However, these trends are not just trends. They appear to be shifts in the way food franchises will operate going into the future.

COVID-19’s Effect on Food Franchise Dining

“We always felt the demise of the dining room was greatly exaggerated. It wasn’t an either or; it was an ‘and.’” ~ CAVA CEO Brett Schulman

In early 2020, the world as we knew it changed in an unprecedented way as most of the world went into quarantine to mitigate the effects of COVID-19. Years later, we are just starting to gain perspective on how the emergence of the novel coronavirus evolved industries of all kinds.

When it comes to food franchising, specifically, no place was more effected than the dining room. In the aftermath of lockdowns and restrictions on indoor capacity, an overwhelming number of food franchises moved to reduce dining room space—or forgo it all together in favor of drive-thrus and pick-up windows for mobile orders or ghost kitchens as explored in our food report a couple years back.

But in the past year, data from some sources is showing drive-thru usage making a return to its pre-pandemic “normal” despite the rapid increase in mobile ordering capabilities and delivery options. The shift back leads to the question: Have food franchises been focusing too much on drive-thru development?

Maybe. Possibly. Contrary to the widespread belief over the past couple of years, the fears of losing on premise dining in near totality appear to be overblown. Where we appear headed is a balance between on- and off-premises dining, a hybrid if you will. “Hybrid restaurants” are restaurants that combine components of dine-in and off-premises dining into one cohesive operation.

The hybrid restaurant isn’t exactly a new phenomenon, however. Even before the pandemic, food franchises were beginning to incorporate elements that served both their sit-down and off-site customers. The changes were becoming overwhelmingly necessary to keep pace with a society becoming increasingly obsessed with convenience and immediacy in all aspects of life.

“Guests love the optionality of both those channels,” CAVA CEO Brett Schulman says, “depending on what their need is on a given occasion, time of day, lunch or dinner.”

The goal now for food franchises is to “reduce friction for consumers and crews, and develop an experience where digital and in-store don’t detract from each other,” as it was put in a March 2023 QSR Magazine profile on the evolution of the dining room in the foodservice industry.

Technology Further Integrates into the Food Franchise Industry

The reason the food franchise industry could shift so fast towards a more non-dining room focused future in the first place is the rapid rate of digital development in the industry.

“Technology powers everything from the point of sale, grills, to the new back-office platform designed to streamline general manager tasks,” says Abigail Pringle, President of Wendy’s. Pringle also serves as the franchise’s International and Chief Development Officer.

The impact of technology may not be more evident in any other piece of the food franchise puzzle than in how customers order. It used to be that you could only order at the counter, then came the drive-thru as well. But now, you can order from anywhere with the aid of a smartphone. And customers are taking advantage.

In February 2023, the top ten quick-service restaurant mobile apps in the U.S. were downloaded by first-time users 10.5 million times, an increase of 4.2% over January 2023. When compared to February 2022, downloads for the top 36 quick-service restaurant apps were up 33.7%. Further, according to Boston Consulting Group, “Across the restaurant industry, digital ordering now represents 28% of all orders compared with 10% before the pandemic, with most brands showing increases.”

In summer 2022, Adam Blacker, VP of Insights at Apptopia, noted the record pace of food app downloads. “More records will undoubtedly be set,” Blacker said. “Also something to note is that this is not just the top few franchises like McDonald’s that are growing. The average number of downloads for the No. 10 spot on these top charts has been increasing steadily as well.”

With the individualization these apps provide, the onus is on food franchises to be flexible in how they serve their customers. “To meet our customers where and how they want to enjoy Wendy’s, we offer a variety of ordering options including through kiosks and the Wendy’s App. For those customers who order ahead, mobile pickup spots and grab-and-go shelves make it quick and easy to retrieve orders. These options allow customers to interact with us using the platform of their choice,” says Pringle.

Into the future, expect even more technology to make its way into food franchising. “Automating food prep, QR codes for both mobile menus and payments, AI for voice ordering and inventory control are just some of the technologies that are becoming mainstream in an effort to find efficiencies,” says Brian Hickey, CEO and co-founder of VROMO.

Food Franchises Exploring Sustainable Options

As has been a theme in this report, COVID-19 changed the face of food franchising, likely in ways we won’t begin to understand for years to come. But the changes aren’t just confined to operations. Franchisors are taking a hard look at their materials as well.

Consider Chick’nCone’s latest non-traditional prototype made out of a shipping container. The 360-square foot prototype, already operating in Dubai, also combines aforementioned service elements amplified by the pandemic. It’s entirely devoted to off-premises traffic, featuring a walk-up window and drive-thru lane.

According to company CEO Jonathan Almanzar, the new prototype takes upward of 40% off the costs and time needed to open the unit compared to the company’s conventional restaurant design. “You can’t argue with those numbers,” he said.

Beyond numbers, the demand for sustainability is mounting from customers on all fronts.

Among the 7,000 consumers surveyed in spring 2022 by Censuswide and Deliverect, 43% said they are willing to pay more at restaurants that have visible sustainability practices, and 56% said they would choose a restaurant that uses eco-friendly packaging and does not have single-use plastic. However, more than half doubt restaurants are being transparent about their sustainability practices.

“Consumers and investors care about [sustainability], and taking corporate responsibility is the right thing to do in terms of making sure we are improving the impact; but what has also become apparent is that the companies that focus on these areas and put meaningful effort and resources behind them perform better,” says Liliana Esposito, chief corporate affairs and sustainability officer at Wendy’s.

Wendy’s is one of the food franchises that has set a public goal on this front. However, like many others, it has found progress can take time. In 2020, the company set a goal to sustainably source 100% of its “customer-facing” packaging by 2026. According to a QSR Magazine article, 48% of Wendy’s customer-facing packaging was sustainably sourced at the end of 2021.

Buying a Food Franchise

Now that you are up to date on industry trends, start your search for the food franchise that suits your needs.

Prior to investing, prospective franchisees should do their research as well as carefully review the franchisor’s Franchise Disclosure Document (FDD) for more detailed information on all systems, procedures and costs associated with that franchise. It’s important to note that while many initial and ongoing costs are detailed in the FDD, there are some costs inherent to business ownership, like employee wages or utility costs, that aren’t.

The Initial Investment and Opening Costs

The amount necessary to open a franchise varies depending on the unique business system and execution requirements. The opening costs for a food franchisee can depend on many factors including, but not limited to, the franchise fee, land and building costs, training expenses (such as travel and living expenses, not the actual training courses), grand opening advertising and marketing costs, and more.

One of the most important variables in how much it costs to open a franchise is the type of franchise being opened and how big it is. Commonly, the two types of food franchise offered are traditional and non-traditional. Traditional franchises are usually the biggest option. They are typically standalone buildings where the service of the franchise is the only business offering. Non-traditional franchises are smaller, and typically located within another building like airports or gas stations. Other food franchise types include kiosks, food trucks, and satellites.

Franchisors offer estimates in their FDD based upon their experience establishing, and in some cases operating, units. However, prospective franchisees should keep in mind these estimates are just that – an estimate. Prospective franchisees should review the figures presented with a business advisor, taking into consideration their unique circ*mstances, before making the decision to enter into a franchise agreement.

Ongoing Franchise Fees

Throughout the length of the agreement there are costs for being a part of the franchisor’s business system. These costs include items such as royalty fees, charges for technical support, and continued advertising/marketing costs.

The most common is the royalty fee. Royalty fees are assessed for the continued use of the franchisor’s trademarks and patented processes, along with certain types of operational support. In addition to regularly assessed fees, other fees are charged on an “as needed” basis such as audit fees, or costs for additional, non-mandatory, training.

--

Start your food franchise search today by searching our listing of some of the top food franchises. You also find advanced investment information for a number of food franchises in our FDD Research Hub.