Fast food franchises with a twist

Its not that surprising that food retail was the first sector to franchise. Giants like the McDonald's franchise , the Subway franchise , the KFC franchise and Red Rooster have helped it retain both the highest profile and one of the heaviest franchising penetrations. There are good reasons why.

“If you’re selling homewares, you’re a retailer – your products have already been manufactured,” he says. “If you’re a food retailer, preparation is happening in the store, which means you’re also a manufacturer. That makes the business very complex and very dependent on the quality of the people running it,” says Adrian McFedries, Managing Director of DC Strategy.

“This can present a significant challenge at a company level,” he says, adding: “For instance, if you have a chain of store-owned bread shops, it’s not easy getting 200 or so people up and baking across the country by 3am every day. There’s also a need to keep a close eye on stock levels. Demand for perishables, like meat, will vary from outlet to outlet and you must be able to respond quickly to changes – every time you order too much you’re losing profits. Franchising makes issues like these more manageable by sharing out the responsibilities.”

The trend of healthy eating

Experts agree that the big news in the sector is a move towards healthier options. “Fast foods used to be convenient, but not healthy,” says Professor Andrew Terry, Head of the School of Business Law and Taxation at the University of New South Wales (UNSW).

“The trend onwards healthy eating has not only driven places like McDonald’s to expand their menu. It has also opened up new niches in the market for more dedicated brands selling things like salads and pastas and sandwiches.”

This diversification is also sparking the growth of very specialist brands. ”Sandwiches constitute one of the highest consumed items of food in Australia, but apart from Subway – which is a slightly different type of offering – the market has always been very fragmented,” says McFedries. “Now you're getting brands like Healthy Habits providing alternatives to the independents by creating recognised and more consistent offerings.

Richard Evans, CEO of the Franchise Council of Australia (FCA), says the market is simply responding to consumer demand. “We have long recognised women and, in particular, young women, as major consumers,” Evans says. “Now the continuing focus on the dangers of obesity is driving the growth of fitness centres like Fernwood and Curves, as well as healthier food options.

“There are exceptions, of course, like the amazing introduction of Krispy Kreme Doughnuts,” he says. “And trends do, to some extent, depend on where you are. Chicken shops like Red Rooster have traditionally found it difficult to break into NSW. Oporto opened up the market by building on the way people traditionally buy their chicken in NSW – out of the local shop. In Victoria, people don’t mind paying more to get their pizza from the local Italian restaurant, which has made it difficult for Domino’s to break in.”

Changes in the landscape

One recent change in the landscape has been the demise of franchised restaurants like eat-in Pizza Huts and Sizzler. “Franchising is all about consistency,” says Arena. “In terms of quality, a franchisor would rather have a 7 every time than some 10s and some 5s. Restaurants just don’t work like that.”

Meanwhile, coffee is continuing to take the sector by storm. It’s the biggest single area of expansion – and we just can’t seem to get enough.

“There’s been huge growth in sit-down coffee shops,” says Arena. “As times get tougher, people will save money by bringing sandwiches from home, but think nothing of having two or three coffees – especially those who treat their local coffee shop like an external office. Like restaurants, coffee shops are even more saleable if they have an outdoor area. People like sitting outside, and it’s somewhere you can smoke.”

Easier options

This need is reflected in the rapid growth of service industries – both home and business-to-business. They are now hot on the heels of the food and beverage sector, and with good reason.

“Retail is seven days a week and, in some cases, 24 hours a day,” says Evans. ”That’s very demanding. And, on top of that, there are the challenges of managing staff, overheads and customer service.

“Some franchisees go into business wearing rose-coloured glasses. They don’t understand the impact that long-term time-consuming effort will have on their lifestyle. Sometimes, they don’t ask enough questions. Sometimes, they don’t ask the right questions. And, sometimes, they get answers they don’t want, but they are so enthusiastic and excited that they just don’t believe them.”

By contrast, many service sector franchises can be operated from home. This makes them less expensive, more flexible – and free from the tyranny of the landlord.

The Franchise Council of Australia is a not for profit membership organisation that is the peak body representing the franchising sector in Australia.