IFA Report Predicts Continued Quick-Service Franchise Growth
Last month saw the release of the International Franchise Association (IFA)'s annual Economic Outlook report, a study of the franchise industry's performance in the U.S. over the past year and a projected economic outlook for the next twelve months.
The report states that despite 2023 being a year of further economic uncertainty as businesses continue to navigate the aftermath of a global pandemic and battle inflation, labour shortages and escalating interest rates, franchising as a sector continues to perform well. In fact, industry growth exceeded the 2023 report predictions, with the number of franchised establishments increasing by 2.2% compared to the predicted 1.9% increase.
A key prediction of the 2024 report is that personal services (defined in the study as as "services related to beauty, health and fitness, storage, moving, education, childcare, sports and recreation, pets, and travel") and quick-service restaurants will experience stronger growth than other industries over the next year. The personal services sector is projected to be the growth leader, with the number of franchise establishments, growing by 3% to 124,508 units. Quick-service restaurants are anticipated to secure the second position, with a projected increase of 2.2% to more than 199,000 units in the United States.
Consumer demand for fast food and and particularly take out dining options continues to rise year on year according to the Statista Research Department, undoubtedly contributing to the continued upward trajectory of the quick-service sector. In addition, despite continuing to contend with the increasing costs of equipment, supplies and materials, the industry has continued to adapt and find new solutions to meet rising real estate and construction costs with more drive-thru, out of town and smaller seated units being established, with lower operating costs and offering more affordable franchise investment opportunities.
The IFA report predicts key trends which will fuel growth for some players in the quick-service market Firstly, consumers, having generally less money in their pockets for treats and luxuries, will favour brands which offer a more personalised, individualised or unique customer experience. In particular, “eatertainment” options combining food and entertainment to offer a unique dining experience are witnessing a real surge in popularity, in particular amongst Gen Z, the demographic of under 26's who are social diners spending a high proportion of their income on food and beverages and craving Instagram-worthy experiences that are both innovative and interactive.
Secondly, post-pandemic there is an overall heightened focus on personal health and wellbeing, which means that fast-food brands offering healthier and sustainable menu options will see an associated increase in popularity. And as the industry faces both wage increases and labour shortages, brands which prioritise investment in technology to both streamline their own operations and to enhance the customer experience are likely to significantly reap the rewards.
Also predicted to continue to thrive are virtual (or ghost) kitchen operations and mobile concepts which by their nature have lower operating costs and can be quick and agile to embrace trends. They of course experienced a real boom during the pandemic and are are expected to continue to thrive as they harness technology to improve their service and delivery times and routes.
Whilst the quick-service industry, like so many others, continues to face many challenges, the IFA study demonstrates the resilience of the franchise model and suggests that the growth in franchise units in 2023 has in part been driven by an increasing number of individuals leaving corporate work to pursue franchise business ventures in order to try and achieve a better work-life balance and flexibility, combined with some significant multi-unit development deals with private equity firms. And with food prices expected to start to decline in line with inflation and quick-service brands continuing to adapt and evolve to meet changing trends, franchise opportunities within the fast-food sector are likely to continue to whet the appetites of new franchisees and investors alike.
