QSR September 2022

BEST FRANCHI SE DEALS

Restaurant franchising did far more than weather the worst COVID-19 couldmuster. And now, it’s on the cusp of more growth, higher standards, and no shortage of possibilities.

A A s the pandemic era nears its waning chapters, franchising has held steady. In fact, you could argue market conditions threw weight behind one of the sector’s historic growth vehicles. The franchising field expanded at a 3.2 percent compound annual growth rate from 2015–2021, according to financial services company Rabobank. The share of franchising as a portion of foodservice sales in the U.S. scaled about 4 percent, per year, through that window. The top 10 franchising restaurants’ market share lifted from 19 percent in 2012 to 28.4 percent by 2021. That compared to an 11 percent decline for non-franchised restaurants, based on Rabobank estimates. Per Euromonitor, as of 2021, franchises accounted for some 40 percent of domestic foodservice sales. During the pandemic, franchises grew their market share nearly 10 percent, Rabobank data showed. And it’s just beginning. McDonald’s franchisees, for instance, which make up 95 percent of its U.S system, experienced average growth of $125,000 per restaurant last year. That put operators over $500,000, a 50 percent hike in the past three years. Financial reporting from franchisees, industrywide, indicated stron ger-than-normal cash operations, up 28 percent in 2021 versus the five-year average. Franchisees grew absolute sales from $213 billion in 2019 to $238 billion last year. The why behind the sector’s resiliency traces back to decades of selling points. But it also owes to what’s changed. “Great quick-service restaurant franchise deals stem from mutual trust, attraction to a dynamic and growing brand and above all, the fundamental financial metrics of the business,” says Robin Gagnon, CEO and cofounder of We Sell Restaurants. “Rapidly increasing costs to launch and operate require that franchisees join forces with those who offer the greatest opportunity to leverage their capital and grow their operation.” “For those reasons, AUV has never been more critical since sales can play a key part in delivering on profitability,” she adds. “Low-volume operations that a few years ago may have been worth a second look will slide as occupancy, interest rates, and buildout costs spiral to new norms.” This has been clear at the top. Yum! Brands and Restaurant Brands International turned in signficant growth in 2021. The Pizza Hut, KFC, Habit Burger, and Taco Bell owner debuted a net of 1,259 restau rants in Q4, pushing its year-end total to 3,057 net new openings—the most in its history, and, according to CEO David Gibbs, the most ever achieved by a restaurant group. Burger King, Popeyes, Firehouse Subs, and Tim Hortons’ parent achieved net growth of 4.5 percent, finishing the calendar with 29,456 restaurants compared to 27,025 in the year ago period. Inspire Brands, which directs Dunkin’, Arby’s, Buffalo Wild Wings, Rusty Taco, Sonic Drive-In, Jimmy John’s, and Baskin-Robbins, opened more than 1,400 units in 2021, including over 500 U.S. franchise-led stores and 800 locations outside the country. Alex Oswiecinski, cofounder and CEO of Prospect Direct, says you can’t get around hard numbers. Brands with a solid ROI are going to attract operators, especially amid rocky conditions. “In a time when other assets like stocks are very volatile, folks are looking at where they can put capital that has a reliable, proven track record of returning cashflow in the near- to-medium term,” he says. “I believe the trend will

www.qsrmagazine.com | QSR | SEPTEMBER 2022

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