Where franchising is headed

The real test is whether franchising’s top “cats” can set standards of franchising behaviour that will continue to give new franchisees the confidence to invest.

The Globe and Mail
December 30, 1996

Where franchising is headed
Coffee and bagels are still prized territory, but intangible products such as education should see some action
John Southerst


Talking about franchising trends is a bit like predicting the direction of a herd of cats.

The subjects of discussion are governed by no law (except in Alberta). They are dissimilar, independent and contrary. Future actions promise to mimic the scattering of shrapnel more closely than the smooth, group fluidity of fish.

Keep in mind that what follows is a random sampling of opinions and impressions from the toms and tigresses of franchising. These observations are intended to assist – not replace – your own franchise homework.

COFFEE AND BAGELS TO GO: The question is, go where? For the past few years, coffee and bagels have been exactly where food franchisors want to be – young, multicultural, upwardly mobile and hip.

Coffee is still prized territory for franchisors, but it’s increasingly a battle of titans. Coffee drinkers are drifting into stratified segments, a sign the market is maturing

Tim Horton’s has taken the mid-range, Second Cup is tightening its grip on the top end, and Starbucks (not a franchisor, incidentally) is higher still.

“The theory is, the growth is based not so much on greater consumption but on readjustment of the market,” says Toronto franchise lawyer Paul Jones.

You’ll see a tougher, more competitive market, he adds, as major players wrestle customers away from small shops.

The same goes for bagels. Tim Horton’s wiped out a lot of potential for new franchisors by rolling out bagels in about 1,300 locations across Canada. “It’s not that people will stop eating bagels,” Mr. Jones says, “it’s just too easy for existing restaurants to add them to their menus.”

The catch phrase for 1997: Be cautious.

POPULATION TRENDS: Demographer David Foot of the University of Toronto believes that watching population trends can tell franchisors a lot.

For instance, a “baby bust” in Quebec and the Atlantic provinces in recent decades has made Canada east of Ontario a poor choice for franchisors whose products depend on children or their parents as a market. A baby “echo” from Ontario to British Columbia, however, means that franchised chains selling fast food, toys, children’s clothing and day care should expand in that direction.

But Mr. Foot also observes that the days of concepts that compete on price may have passed. “A nation filled with young people is a market that competes on price,” Mr. Foot says. “But a nation of working people with families and little time to spare is a market that competes on price, quality and service.”

Yes, society is maturing and so are its tastes and standards. Everywhere, increasingly militant consumers are demanding better value. And franchisors that deliver it at an affordable price will increasingly win the day.

The target markets are usually those where standardized service, quality control and brand-name trust are superimposed on an industry dominated by small, diverse independents.

A TASTE FOR TRAVEL: Traveling vicariously through the experiences of your taste buds may be the next big food rage as old-style ethnic restaurants convert to branded chains. “People seem to want something more exotic than basic fare when they go out,” says franchise lawyer John Sotos. “A lot of existing restaurant owners believe they can make a better living with a franchise than as an independent.”

YOU DESERVE SOME BRAKES TODAY: Auto repair is ripe for consolidation. Look at what happened to mufflers and oil changes – products where specialization and standardization were simpler. But it won’t stop there. Expect the same in auto bodywork, brakes and engine repair. Smaller shops and dealers will merge into higher-volume franchised operations.

DRIVE-THROUGH LEARNING: all the pundits agree there will be a lot of action in franchised education. There’s incentive on the supply and demand side. Educated, stay-at-home parents see teaching as a honourable source of part-time income that doesn’t take them away from the kids.

Meanwhile, every parent recognizes the value of quality learning, and a lack of confidence in public education has pushed many of them to look elsewhere.

Computer schools, tutoring services, private educators and specialty training centers will continue to spring up to serve people – and the assurance of a quality franchisor’s “brand” of education will go far.

YOUR BUSINESS IS MY BUSINESS: Entrepreneurs are quickly drawing the conclusion that success in the nineties isn’t a matter of huge investments in location and premises. They want advice, creativity and expertise, including accounting services, spot legal work, high-quality temporary employees, and brilliant advertising.

Can new franchised operations deliver consistent quality in intangible products – such as education, creative services and even car-engine analysis – as others have in categories such as fast food and photo developing? They are and they will.

The real test is whether franchising’s top “cats” can set standards of franchising behaviour that will continue to give new franchisees the confidence to invest.

John Southerst, a Toronto business writer, can be reached by E-mail at moc.eriw-eht|htuosj#moc.eriw-eht|htuosj

Photo illustration by Thomas Dunnenberg, The Globe and Mail

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Risks: Industry in disrepute, Investor confidence crushed, no trust or buying, Canada, 19961230 Where franchising

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