Well-established business models and numerous success stories have combined to make hospitality and food and beverage highly popular segments for prospective franchisees. However, in a competitive market, brimming with brands, making the right choice is critical. Nagi Morkos, founder and managing partner at Hodema Consulting Services, considers the key trends and new opportunities emerging this year.

The franchising system no longer needs an introduction. The business model – whereby franchisors are able to expand their business at a minimal cost and the franchisee is provided with a brand that has been successfully tried and tested – is one with which we are all familiar. In the United States, a new franchise opens every eight minutes during a single day of business. But, that said, not all of them prove to be winning formulas. So, what are the trade secrets of a successful franchise?

Hospitality: made for franchising

Although franchises can be found across the sectors, some are more likely to attract aspiring franchisees. According to the International Franchise Association
(IFA), the F&B and hospitality industries top the list of mainstays. So why are some activities more appealing than others in the eyes of franchisees? The answer is simply that some businesses are easier to franchise than others.

The hospitality sector has become synonymous over the decades with franchising expansion on a global scale.

For example, Marriott International, with over 30 brands, has expanded to 10,000 global destinations, operating franchises and licenses lodging brands that include hotel, residential and timeshare properties. However, for most people, the F&B industry is the first segment that springs to mind when we think of franchises. This development strategy has enabled giants like McDonald’s, Pizza Hut, Starbucks and Dunkin’ Donuts to flood the world with their logos. The root reason is that food is something people will always spend money on, so will never go out of fashion. Social media is a major booster too; on Instagram alone, the
#food will show 535 million posts. Mobile phones have now become restaurants’ most efficient promotion tools.

The appeal of quick service

The quick-service restaurant (QSR) segment, which originated in the US, has proved to be one of the most competitive, but also profitable franchising plans to date, despite being hit by inflation in many countries. The segment is currently outpacing all others within the industry when it comes to growth, according to estimates made by the IFA. And with eating habits shifting and delivery services and the cloud-kitchen segment booming, new money-making ideas are being continually added to franchisors’ business plans. The upside of QSRs and delivery is that their format is easy to replicate anywhere, on both the operating and branding sides. Profits can be generated relatively quickly, as soon as the structure is up and running.

The use of mobile ordering, contactless payments, AI-generated options and overall technological integration are making the experience even smoother for customers. Another argument in favor of QSR franchise businesses is that the trends of fast food and fast-casual have now become part of our everyday lives. We want to eat what we want, when we want, without spending too much money.

Every type of cuisine, from Asian dishes to salads or burgers, can be adapted to the concept, extending its reach to the largest possible customer base. So, a well thought out QSR franchise plan has every reason to do well.

This doesn’t mean that higher-end concepts should be avoided by investors, although it’s important to beware of the trend bubble in this segment. Establishments focused on a more luxurious offering can sometimes be part of a fad and then fall into oblivion as soon as another venue comes along and steals the spotlight. McDonald’s, on the other hand, has survived the years despite fierce competition globally.

Checking the right boxes

Success, however, depends on more than simply choosing the right segment for a franchise – selecting the right brand is also essential. Key criteria should include checking the brand’s track record and ensuring that the business corresponds with your aspirations as a franchisee. Trying to develop a brand identity that you don’t relate to will make your life increasingly difficult and hamper your business. Once you’ve found your fit, the next step is to sharpen your focus on what you’re looking for. One safe option is to consider an experienced franchisor, who has already begun building a solid network and established a good reputation. Then take a detailed look at the franchise and royalty fees, disclosure document and term length, and ensure that there’s a sound operations manual. The franchisor also needs to have a good marketing strategy and offer training programs and support systems. It’s critical, next, to choose your location with care, since this can make or break your venue. Competition is another factor that needs to be carefully considered. Once you’ve identified who else is out there in the marketplace, it will be easier to spot opportunities and focus on making your brand identity unique.

Going niche

Benchmarking the competition is especially important if you’re considering investing in a specific segment. Although it’s often said that a franchise’s success relies on the fact that customers can instantly recognize the brand, niche or specialized segments can also be a good business idea. In F&B, this could be a brand in the vegan market, for example, or, in the hospitality industry, a wood-cabin hotel perched in the trees. These initiatives involve targeting specific markets, so doing your research and carefully weighing up the pros and cons is imperative. And again, beware of the fad and novelty effects. Your business should pass the test of time, as should the franchisor’s development strategy. The marketing plan is also crucial. Less competition doesn’t automatically translate into more business. You are not targeting the masses, so your message needs to be tailored to finding the right customers.