Growth, profitability and the presidential election top of mind among franchisors, franchisees
Franchisees and franchisors gathered at the 52nd annual International Franchise Association convention in Orlando, Fla., expressed a collective sense of optimism that sales and unit counts would grow modestly in 2012.
Concept operators and IFA officials said in educational sessions and keynote speeches that franchising would continue to rebound from the recession, despite lingering challenges from the anemic lending environment and policy uncertainty in an election year.
Nation’s Restaurant News outlines the three top takeaways from convention attendees:
1. It’s getting better
According to the IFA’s “2012 Franchise Business Economic Outlook,” the number of franchised business locations is projected to increase 1.9 percent in 2012. Quick-service restaurant franchises are expected to increase the number of establishments in 2012 by 2.6 percent, while full-service restaurants are projected to increase their unit counts by 2.1 percent.
The organization also expects employment at franchises to increase 2.1 percent this year, on top of a 1.9-percent gain in employment in 2011. Quick-service brands are projected to increase employment by 2 percent this year, followed by a 1.8-percent projected increase at full-service restaurants.
Economic output from franchised businesses is expected to grow 5 percent in 2012, to $782 billion. The IFA projects output at quick-service locations to grow 4.4 percent this year to a total of $201.2 billion. The organization projects full-service restaurants to increase their output 4.2 percent to $58.7 billion.
2. The focus is on average unit volumes
With brands and their franchisees expanding, but at slower rates than prior to the recession, maintaining and improving profitability remains a top priority, officials said.
Aziz Hashim, chief executive of NRD Holdings and a franchisee of several brands including Popeyes, Subway and Domino’s Pizza, said Domino’s commitment to increasing franchisees’ sales and profitability through a reformulated pizza and adoption of new technology attracted him to the brand in the past year.
“Domino’s took a huge risk in redeveloping its pizza, making a big change and bringing around about 1,100 franchisees,” Hashim said. “That really inspired me and gave me a lot of confidence in the brand, enough to where I bought 23 stores from them. They’ve made incredible investments in technology, and today they’re clearly the leader, and that’s why I invested in the brand.”
One brand that did grow rapidly last year, Firehouse Subs, did so by shoring up fundamentals, said chief executive Don Fox.
“I have a standing challenge to my real estate team every year,” Fox said. “It’s not the number of openings that’s important, it’s how well they do. By far, growing our [average unit volumes] is the No. 1 metric for my brand.”
3. The election hangs over everything
Fox added that forecasting his chain’s performance in 2012 would be tricky because it is an presidential election year. Aside from the uncertainty on the legislative front, particularly in terms of mandates for employer-provided health care coverage, Fox said the disparaging ads flying back and forth between Democrats and Republicans can be bad for consumer confidence.
“The only wild card I’m concerned about is the tenor of the election,” Fox said. “In the 2008 election, for example, all the negativity fed to the press was a real catalyst to the declining consumer confidence we saw that year. Despite all the rancor in the Republican primary, that hasn’t had an effect on consumer confidence yet, and I hope that continues.”