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Food Service Opportunities

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Food Service Opportunities

Source: Michael J. McDermott - " Foodservice Opportunities: A Franchise Feast"

If there is a single industry more closely identified with the concept of franchising than any other, it must surely be foodservice. Restaurants and other eateries, especially those of the fast-food variety, have always played a major role in franchising. Known in industry jargon as quick-service restaurants (QSR), these outlets have achieved global recognition thanks to the ubiquity of brands such as McDonalds, Burger King and Subway Sandwiches.

Fast-food outlets have achieve global recognition from the ubiquity of franchise brands.

Franchising is a dominant force in the foodservice sector, and its leadership status there is unlikely to change. In the QSR segment of foodservice, for example, franchised establishments account for more than 56% of all quick-service eating places in the United States, according to "Economic Impact of Franchised Businesses," a comprehensive study prepared for the International Franchise Association (IFA) Educational Foundation by PriceWaterhouseCoopers.

The top 10 QSR brands are all franchises, starting with No. 1 McDonalds, which had more than $27 billion in 2006 sales, and ranging down to No. 10 Sonic Drive-In, with more than $3 billion in revenues in 2006.

Franchise systems account for more than 80% of U.S. jobs and payroll in the QSR segment, along with total economic output approaching $120 billion a year. Franchising plays a smaller role in the full-service restaurant segment, accounting for about 23% of jobs and payroll and just over 13% of total establishments. Even so, it generates more than $37 billion of economic impact there.

While there seems to be little doubt about franchising’s continued prominence in foodservice, there is changeвЂ"important changeвЂ"underway in the sector. Experts say that what worked in the past is no longer a guarantee of success in the future. Changing market conditions demand new approaches, and the resultant challenges may be greatest for some of the industry’s most established formats.

One trend that has emerged over the past few years is the increasing role being played by robotics. With unemployment levels remaining low by historical standards despite a somewhat bumpy economy, QSR and other foodservice franchisees cite staffing and labor as their biggest challenge. Many have turned to kiosk ordering systems and other technological developments to address the problem.

Another challenge facing this segment of the industry involves a shift in consumer demand. "Fast-food chains and full-service restaurants together account for about 60% of the U.S. foodservice industry," said John McPherson, a principal in the research and consulting firm McKinsey & Co. "They are now suffering because more consumers are demanding what neither can profitably offer: fresh food served quickly in a distinctive, casual environment."

A challenge facing the QSR segment of the industry is a shift in consumer demand.

For traditional fast-food purveyors, such as burger chains, the fresh-food aspect presents an operational challenge, although many are rising to meet it with the introduction of salads and similar fare.



Harry Balzer, vice president of the food research unit at NPD Group, a Chicago-based consumer marketing research firm, has been following trends in the industry for more than 30 years. He, too, is convinced that the combination of fresh, good-tasting food delivered in an efficient manner to meet the demands of consumers’ on-the-go lifestyles is the key to future success in foodservice.

"Are you using foodservice outlets more than in the past? The average American is not," Balzer said. NPD Group’s research shows that the number of meals purchased at restaurants per capita has stopped growing for the longest sustained stretch in the 23 years during which it has been tracking that number. At the same time, the number of women working outside the home has been flat or down over the past several years, and analysts believe that is an important factor.

"There could be any number of reasons for the decline (in restaurant meals per capita), including uncertainty about the economy," Balzer said. "But it is certainly worth noting that the flattening has coincided with the leveling off of growth among women in the workplace."

The number of meals per capita purchased at restaurants peaked at 211 in 2001.

After holding steady at about 60% for about five years through 2001, women’s participation in the paid U.S. labor force has been on the decline since then, according to the Labor Department. The number of meals per capita purchased at restaurants peaked at 211 in 2001 and has since declined to 207 in 2007.

However, that trend has been most troubling for independent foodservice operators, and NPD’s data show that many franchise chains are continuing to grow even while the overall number of eateries remains flat, at best. A big driver of franchising’s continued success in this industry is the popularity of takeout meals, which a rapidly growing number of franchise chains offer to their customers.



Balzer believes that the greatest opportunity for reigniting growth lies in one area in particular. He said that consumers want fresh food that tastes great, but they don’t want the hassle of having to prepare it themselves. Foodservice operators who find efficient ways to meet that growing demand will be best positioned for future growth, Balzer contends, and he sums up the opportunity in a single sentence: "You can see it in sandwiches."

Sandwiches and salads are extremely popular with diners because the best ones are made with fresh, wholesome ingredients, they taste great, and they’re convenient for busy families with on-the-run lifestyles. That is, they’re convenient as long as someone else is making the sandwiches and salads for them. As evidence of the strength of this trend, Balzer points to the burgeoning number of restaurants in all sectors of foodservice scrambling to add those items to their menus.

Other opportunities may be found in coming up with new ways to deliver traditional



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