QSR September 2022

BEST FRANCHI SE DEALS

continue where brands that have proof of existing fran chisees making money by meeting the needs of today’s consumer will have a leg up over brands that are more aspirational, or oriented around hitting trends that are further out.” According to the International Franchise Associ ation’s 2022 outlook, franchise establishments in the quick-service industry increased by 2.6 percent last year. It expects the figure to clock in at 2.1 percent in 2022 for a total of 192,426 businesses. The important note was 2020 saw quick- and full-service franchise venues decline 6.7 and 6.5 percent, respectively. Both bounced back to the tune of 2.6 and 3.3 percent growth. Come 2023, they’ll nearly be on par with where the field stood pre-COVID. Oswiecinski says his company has observed interest “about the same” for franchising as a whole pre- ver sus post-pandemic. “But it has polarized the winners and losers,” he says. “The pandemic changed habits by teaching people that they could procure goods and services without leaving their homes,” Oswiecinski says. “Even after restrictions were lifted, these habits of expecting conve nience remained. Brands that focused on technology or adapted to bring their service directly to the consumer, either physically or digitally, are winning.” Gagnon agrees. “Franchisors that stand out are investing in technology on multiple fronts. This includes the customer service dimension where loyalty apps keep customers returning, measuring their distance to the door to prep food that’s hot when they arrive for pickup and allow for kiosk ordering, improved drive lanes, and more,” she says. Franchise brands continue to leverage tech to reduce footprints (even to the point of cutting the dining room out altogether), while increasing speed of operations to reduce start-up costs, Gagnon notes. “They [also] are using tech to enhance marketing efforts, geo-target ing the consumer, even using artificial intelligence for order-taking to improve profitability as the labor model is re-evaluated within the category,” she says. COVID solidified quick service as a category nimble enough to take the technological leap, while also deliv ering on a support model for franchisees. It’s a dynamic that helped build loyalty and goodwill from operators as investments paid off and they kept the doors open during one of the most chaotic periods on record. As noted, once the landscape shifted, hosts of quick-serves were able to retain sales or even gain market share. It’s going to reshape the base. “Technology fees as part of the franchise agreement within the sector is a topic to be watching as we head into 2023,” Gagnon says. “Shockingly few brands collect these fees as part of their FDD, but this will be a must-have for the future. The evolution of technology is going to require constant

reinvestment to stay competitive in the marketplace. Companies that collect technology fees on an ongo ing basis won’t need to put plans on hold to improve the customer experience while they search for fund ing to innovate.” Stan Friedman, a 30-year franchise executive, vet eran franchisor, and president of FRM Solutions, says leading bands are standing out due to adjustments and forward thinking just like what Gagnon mentioned. In other terms, whether brands met post-COVID require ments and cascaded those learnings down to operators, is a question prospective franchisees now seek out. “More frictionless transactions and fewer touchpoints means online ordering and eliminating the need for someone to physically answer phones to take orders,” he says. “It’s a win for the operator in terms of labor, a win for the consumer—not needing to touch money, sign a credit card receipt, etc.” Friedman believes the pandemic sped changes already coming. “And those who are really winning today,” he says, “are the brands that had the foresight to embrace these technological advances, prior to COVID, as opposed to making mad dashes toward less efficient solutions by virtue of necessity just to stay in the game.” Graham Chapman, EVP of account services at 919 Marketing, refers to today’s leaders as franchise con cepts “built for the modern-day customer.” “These brands are usually led by forward thinking innovators who are ahead of the curve, especially from a marketing perspective,” he says, referencing product placements in popular Netf lix shows and inf luencer campaigns. “Of course, any brands that were early adopters of drive-thru models with a service-minded touch, i.e. Chick-f il-A’s new drive-thru model [express lanes], and have found creative ways to make Olo/delivery apps work without destroying margins are in a great spot,” Chapman adds. “However, an age-old principle is more relevant than ever today—a great franchise deal is awarded, not sold. Franchisors thrive only when they are growing sustainably and awarding locations and territories to qualified candidates who fit the brand and its culture.” THE MAKEUP OF FRANCHISING There should be plenty of movement as the market resets. Among the top 50 quick-serves in 2020, the total number of franchised units fell 2 percent. However, franchisors’ share of unit ownership lifted from 13 to 15 percent. Meaning, operators stepped in at times to take back sagging operations. Those units could be f lipped. Yum! said it anticipates $100 million in refranchising proceeds this year alone. High multiples and eager buyers led to signif icant amounts of deal activity during COVID.

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SEPTEMBER 2022 | QSR | www.qsrmagazine.com