When the average Joe thinks about the franchise market, they probably think first about food franchising. And for good reason: food is one of the most popular areas of franchising.
The food franchise industry offers a vast array of catering opportunities, inviting a range of investment opportunities; from just a couple of thousand dollars to hundreds of thousands (and beyond).
Food franchises offer entry to an established restaurant market, but - actually - that's just the tip of the iceberg. If you're looking for lower investment opportunities, think about the food vending machine sector or small unit outlets selling specialist delicacies such as pastries, gourmet coffees, and bagels.
Everyone needs to eat. Therefore, food franchises will always be in demand. From food trucks and kiosks to full service restaurants and everything in between, the food franchise industry also offers prospective franchisees a wide variety of ways to chase their business goals in addition to its constant demand.
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. These figures don’t even include food-related franchises that are categorized as retail instead of a quick service or full service restaurant.
Major food franchise segments include the following:
Bakery Franchises: These franchises focus on certain product areas for their business e.g. bread, muffins, bagels, croissants, pastries, donuts and other sweet goods. A number of franchises in this area have menus that feature other items like sandwiches, soups, etc. to stabilize income.
Coffee Franchises: The coffee franchise industry is well-developed and competitive. And there’s 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, although takeout or delivery service may be provided.
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.
Juice and Smoothie Franchises: Franchises in this segment have seen a boost from the general public’s turn towards healthier food options. Furthermore, regulations such as banning soda machines from school have led to franchises, like Jamba Juice, creating vending machines for its wares.
Pizza Franchises: Quick and convenient, pizza is a food franchise niche that people can reliably depend on. Because of that dependability, pizza industry growth isn’t 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 food gifting businesses, liquor stores and caterers.
Vending Machine Franchises: While it’s 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.
Something to note is franchises can crossover between the given segments. Also, there are several sub-categories within the major categories.
Hot Topic: Delivery
Even before the pandemic put in-venue dining on temporary hiatus, food franchises were finding out what the ice cream man and pizza franchises have long known: customers like delivery. In fact, according to National Restaurant Association data, delivery accounted for 63% of restaurant traffic in cities and other urban areas in 2019.
Now, delivery is even more important to the health of food franchises, especially in the short term.
Most food franchises are currently contracting with third-party delivery companies such as DoorDash, Grubhub, or Uber Eats. However, now that market demand appears to have hit a mainstream and sustainable level, industry analysts suspect more food franchises will begin to do delivery on their own as they gain more knowledge of the process. Wayback Burgers is one of the first franchises that once used third-party delivery to retrofit delivery into its in-house operation.
In addition, there are also food franchises beyond the typical pizza establishments that already have in-house delivery systems. For instance, Jimmy John’s. The sandwich franchise has offered its own delivery since it opened its doors in 1983.
Initial Investment and Opening Costs for Food Franchises
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, 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.
Franchising
With a market as competitive as the food industry, branding is king. The average American household spends almost $2800 each year on food. That’s $233 a month, $54 a week, or around $7.65 each day. Food and drink sales have doubled across the US since 2000, bringing in a total of $800 billion to the US economy.
So, there's a LOT of money to be made from food in the US. The winners are the ones with the marketing budgets - able to cut through the noise of the industry, creating greater visibility than independent companies could ever possibly achieve.
Franchising offers an excellent opportunity to benefit from:
- Established branding
- A ready-built reputation of customer satisfaction
- Instant curb appeal
- The reassurance of a known menu.
Independent food businesses starting from scratch experience an uphill climb to success - they have to attract customers into their restaurant against the bright lights of the big competitors AND draw them in with an unknown menu.
When money is tight, people go for what they know and can rely on. So, food franchise businesses represent a sound investment, providing the franchisee with instant access to an established customer base and the customer with the reassurance of great food they already love.
Most food franchises provide fantastic training opportunities and management programs to bring you - the franchise owner - up to expert status in your chosen field. Your parent company will usually lend their experience when it comes to the complex administrative set-up, with a package of ongoing support once you're up and running.
Franchises provide instantly recognizable branding, offering immediate curb appeal from the moment you open your doors.
Facts About Food Franchises
Food franchising makes up around 36% of the total franchise establishments within the United States and 48% of the US franchise industry's annual financial output. Food franchises also account for around 65% of direct franchise employment jobs.
You might be surprised to discover that a significant trend in the most popular food franchises is to limit their menu rather than continuously add to it. Indeed, overly extensive menus tend to imply inadequate production of a wide range of items. In contrast, businesses that specialize and hone their menus, offering few and select items, tend to garner favor with the public.
In recent years, convenience stores have become a force within the foodservice sector. Offering up specific zones on shelves and outlets within their stores, food franchises are thriving, offering a range of on-the-go items that capture the convenience store customer base.
The National Restaurant Association expects 1.6 million new restaurant jobs to be created by 2027.
Franchising Vs. Independent
Before you go into partnership with a food franchise, you need to source startup funding. You need to consider which part of the sector you aim to serve: FSR, QSR, or retail. The size of the outlet generally dictates the level of investment you'll be expected to make.
Regardless of the size of your initial investment, you can rest assured that moneylenders often favor franchise businesses due to a business model that's been previously proven successful, sustainable, and profitable.
Independent companies often struggle to achieve funding or encounter higher interest rates on startup loans. This is because they can't prove their business model's viability in the way that franchise businesses can. Going into business without the support of an established partnership compounds the risk in terms of investment returns.
Almost half of all indie businesses go bankrupt within the first three years as they struggle to establish themselves in a saturated marketplace. Food franchises, however, can expect to hit the ground running because they can rely on instant visibility and a menu that customers already know and love.
Franchise owners benefit from the expertise and experience of their parent company. They enjoy a headstart in the marketplace due to their curb appeal and experience immediate patronage from an established customer base who already recognize and love the brand.
Food Franchises
Be spoiled for choice with our excellent range of food franchises, and help feed our great nation with delightful foodstuffs your customers will love.
You can check out many different kinds of food franchises here on Franchise Direct, such as:
- Burger Franchises
- Frozen Yogurt Franchises
- Ice Cream Franchises
- Pizza Franchises
- Restaurant Franchises
