September 28, 2022

Restaurant Franchising Post-COVID: A Story of Resilience and Rebound

As the pandemic era approaches its final chapters, the franchise has remained steady. In fact, you could say that market conditions have given weight to one of the sector’s historical growth drivers.

The franchise field grew at a compound annual growth rate of 3.2% between 2015 and 2021, according to financial services firm Rabobank. The share of franchising as a share of foodservice sales in the United States grew by about 4% annually through this window. The market share of the top 10 franchised restaurants has fallen from 19% in 2012 to 28.4% by 2021. This compares to an 11% decline for non-franchised restaurants, according to Rabobank estimates. According to Euromonitor, in 2021 franchises accounted for approximately 40% of national foodservice sales.

During the pandemic, franchises increased their market share by almost 10%, according to data from Rabobank. And it’s only just started. McDonald’s franchisees, for example, which make up 95% of its US system, saw an average growth of $125,000 per restaurant last year. This put operators at over $500,000, a 50% increase over the past three years.

Financial reports from franchisees, industry-wide, indicated stronger-than-normal cash operations, up 28% in 2021 from the five-year average. Franchisees increased their absolute sales from $213 billion in 2019 to $238 billion last year.

The why of the sector’s resilience dates back to decades of sales pitches. But it also depends on what has changed.

“Good quick service restaurant franchise business stems from mutual trust, the appeal of a dynamic and growing brand, and most importantly, fundamental business financial metrics,” says Robin Gagnon, CEO and Co-Founder of We Sell Restaurants. “Rapidly rising start-up and operating costs require franchisees to partner with those who offer the best opportunity to leverage their capital and grow their business.”

Did we understand correctly? A look back at last year’s predictions

“For these reasons, AUV has never been more critical as sales can play a key role in profitability,” she adds. “Low-volume operations that a few years ago may have been worth re-examining will decline as occupancy, interest rates and construction costs soar to higher levels. new standards.

It was clear at the top. Yum! Brands and Restaurant Brands International saw significant growth in 2021. The owner of Pizza Hut, KFC, Habit Burger and Taco Bell launched a network of 1,259 restaurants in the fourth quarter, bringing its year-end total to 3,057 new net openings, the most in its history and, according to CEO David Gibbs, the largest ever by a restaurant group. Burger King, Popeyes, Firehouse Subs and parent company Tim Hortons achieved net growth of 4.5%, ending the calendar with 29,456 restaurants compared to 27,025 the previous year.

Inspire Brands, which runs Dunkin’, Arby’s, Buffalo Wild Wings, Rusty Taco, Sonic Drive-In, Jimmy John’s and Baskin-Robbins, opened more than 1,400 units in 2021, including more than 500 franchise stores in the United States and 800 locations outside the country.

Alex Oswiecinski, co-founder and CEO of Prospect Direct, says you can’t get around hard numbers. Brands with a solid return on investment will attract operators, especially in difficult conditions. “At a time when other assets like stocks are very volatile, people are looking for where they can put capital that has a reliable and proven track record of short to medium-term cash returns,” he says. “I believe the trend is going

continue where brands that have evidence that existing franchisees are making money by meeting the needs of today’s consumer will have an edge over brands that are more ambitious or geared towards more distant trends.

According to the International Franchise Association’s 2022 outlook, franchised establishments in the fast food sector grew by 2.6% last year. He expects the figure to reach 2.1% in 2022 for a total of 192,426 companies. The important note is that 2020 saw quick and full service franchise sites decline by 6.7 and 6.5 percent, respectively. Both rebounded to 2.6 and 3.3 percent growth. In 2023, they will be almost on par with the pre-COVID situation.

Oswiecinski says his company has seen “about the same” interest in the franchise as a whole before and after the pandemic. “But it polarized winners and losers,” he says.

“The pandemic changed habits by teaching people that they could obtain goods and services without leaving their homes,” says Oswiecinski. “Even after the restrictions were lifted, these habits of waiting for convenience remained. Brands that have focused on technology or adapted to bring their service directly to the consumer, physically or digitally, are winners. »

Gagnon agrees. “Distinguished franchisors invest in technology on multiple fronts. This includes the customer service dimension where loyalty apps entice customers to return, measuring their distance to the door to prepare hot food when they arrive for pickup and enable kiosk ordering, improving traffic lanes , and more,” she says.

Franchise brands continue to leverage technology to reduce footprints (even to the point of eliminating the dining room altogether), while increasing the speed of operations to reduce start-up costs, Gagnon notes. “They [also] are using technology to improve marketing efforts, geographically targeting the consumer, even using artificial intelligence for order taking to improve profitability as the working model is re-evaluated within the category,” she says .