Some Franchises Better Bets in 2013

Experts say paying attention to consumer trends is one of the many tools needed to select and operate a successful franchise. Many businesses will not fare any better …

Experts say paying attention to consumer trends is one of the many tools needed to select and operate a successful franchise. Many businesses will not fare any better than they did last year or the year before in the wake of new economic recovery, but the same can’t be said of every franchise. Analysts at the International Franchise Association’s business projection for 2013 takes a look at a few franchises they believe will be top performers in the new year. Rounding out the top spots includes hair care businesses like salons, “fast-casual” dining like Chipotle and business coaching and staffing. For more on this continue reading the following article from TheStreet.

Interested in running a franchise? Consider starting a hair salon, becoming a business coach or opening a gym if you’re looking to get the best bang for your buck.

Franchisees are always looking for the next "big thing." Yet, following consumer trends is one of the best ways to keep tabs on the services and products that could do well as business investments.

"Particularly because of this economic downturn … more people are looking to take control of their own destiny," says Brian Miller, president of The Entrepreneur’s Source. "Industry sectors that are growing is certainly something that franchise candidates are interested in" for long-term success.

Miller’s firm helps franchise candidates understand potential opportunities within specific industries. The company works with more than 200 franchise brands, but it represents the candidates, not the franchisors.

While turmoil in Washington and a sluggish economy mean franchise establishment will be moderate this year, there are a few sectors that stand out, according to the International Franchise Association’s 2013 business outlook.

Experts say businesses driven by catering to specific demographics (such as baby boomers), health and wellness, personal services (hair care or auto servicing), and service-based businesses will continue to thrive.

Here are five strong franchise industries for 2013. 

1. Hair Care

Hair care is just one industry in the booming personal services sector. The number of franchise establishments in personal services is expected to grow by 1.5% this year, according to the IFA’s 2013 forecast, making it the fifth fastest-growing sector (tied with lodging) among the 10 that the association tracks.

Hair salons are a particularly good bet because while consumers might decide to skip the lavish vacations or fancy meals, they always need a haircut.

"Even in our do-it-yourself culture [that] we live in, people don’t want to cut their own hair," says Rhoda Olsen, CEO of Great Clips.

"People will always need their hair cut and, especially in a shaky economy, they’re looking for a quality, convenient cut at an affordable price," she says. Consumers are also busy. They want to be able to get in and out of a salon with little wait times. Great Clips’ online check-in service alleviates that issue, she says.

On the business side, the franchises are profitable and conducive to multi-unit ownership.

"Most of the time it does not require a hands-on manager and the franchisee can successfully operate multiple locations. The salons are managed by a licensed cosmetologist and the franchisee focuses on working with the manager and providing the marketing and business side. They make a great team," Olsen says.

"Once franchisees get comfortable owning one salon, they typically buy a few more. After the initial learning curve, adding more locations can be a great way to increase overall profitability," she says. 

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2. Fast-casual restaurants

Fast-casual restaurants are a growing subset of the traditional quick-service restaurants dominated by fast-food giants like McDonald’s (MCD), Burger King (BK) and Wendy’s (WEN).

The segment is hot because consumers are looking for convenience and value. As a result of the recession, there has been a "trade-down effect" by consumers from full-service restaurants to less expensive options. "Consumers still want to eat out, but don’t want to spend as much money," says Sam Oches, editor of QSR magazine.

The fast-casual segment is a more "upscale" version of quick-service restaurants, where brands like Panera Bread (PNRA), Five Guys Burgers and Fries and Chipotle (CMG) have been successful.

"It’s a more premium experience, higher prices, but still a counter-service model," Oches says.

While opening up a full-service restaurant or a well-known fast-food franchise, like a McDonald’s, is out of most people’s price range, the fast-casual space is ever expanding and less risky than a full-service restaurant.

"In some ways [there is] a surefire bet that you’re going to have customers. People always want quick-service food," Oches says. And while profit margins are lower than at full-service restaurants, which take larger investments, "just based on the demand factor and that you can put a quick-service [restaurant] pretty much anywhere — those two things make it really appealing for anyone looking to get into the franchising business."

"Fast casual is really exploding now — it has for the last couple of years," and not just with well-known brands, Oches notes.

The number of quick-service restaurants in general is expected to grow by 1.7% in 2013, the third biggest percentage, according to the IFA’s forecast.

And consumers, particularly the millennial generation, is eating it up.

Operators are experimenting with more multicultural options like falafel and Indian food. With its create-your-own dish menu, "Chipotle really established this model of food service that is ushering in a wave of new restaurants," Oches says. "There are all these food concepts that let you create your own dish with more premium protein options, ethnic flavors — just stuff you wouldn’t normally find in regular fast-food restaurants." 

3. Business Coaching/Staffing

A growing industry, particularly as unemployment stays high and companies remain reluctant to bring on full-time help, is the staffing and temp employment industry.

"This is a business model that is going to grow," says Miller of The Entrepreneur’s Source. "Companies are concerned with the new health-care laws … and more companies are trying to do more with less" by employing part-time workers through temp or contract agencies.

Related to staffing services, particularly as more workers strike out on their own, is business coaching services.

There are several advantages, says business coach Rick Bisio, the author of "The Educated Franchisee."

Low startup costs is the primary advantage. "Most business coaching franchises are less than $100,000 in total investment, which puts them squarely in the low-cost franchise category," Bisio says.

The business also allows for a lot of flexibility. "If you are looking for a business where you do not have to hire a lot of employees and can completely control your schedule, then business coaching might be for you," he adds. "For those business coaches that are able to establish a strong, proven reputation and a solid stable of clients, the financial rewards can be substantial." 

4. Fitness

The increasing public awareness of leading a healthy lifestyle, Americans living much longer and wanting to stay fit and the fight against a national obesity epidemic are all pumping up the $25 billion gym, health and fitness club industry. Gym memberships have increased considerably over the past 10 years to more than 43.6 million in 2012, according to a report by IBISWorld.

To be sure, fitness clubs are reliant on consumer discretionary spending. Like the restaurant industry, consumers are looking for value and affordability in a gym these days.

Fitness franchises come in different shapes and sizes, split between full-service fitness clubs and smaller, convenience fitness clubs. Major players like 24 Hour Fitness, Town Sports International (TOWN), Gold’s Gym and Life Time Fitness (LTM) have suffered, but there is still opportunity on the low-end of the price-and-quality scale, IBISWorld analyst Dale Schmidt says.

"Now that people have gotten used to the low-cost, low-amenity gyms, even though the economy is improving, we haven’t seen a large scale return to the big-budget national chains. Any new entry that could offer a low price point and offer services beyond cardio and weight lifting machines, like yoga classes, while still keeping a low fee, would be the ones most poised to gain market share," Schmidt told TheStreet.

For franchisees, that means a lower investment to get in to an industry that is surely here to stay.

Another growing sub-sector: youth sports franchises. Besides the growing obesity epidemic, especially among children, due to budget cuts, local town and city recreation departments have been crimped, while school outsourcing of their sports programs has surged. It provides a huge opportunity for private league operators, says Frank Fiume, CEO of i9 Sports, a fast-growing youth sports franchise in the U.S.

The company offers leagues, camps, and clinics for boys and girls ages 3-14 in today’s most popular team sports such as flag football, soccer, basketball and baseball.

"i9 Sports has experienced double-digit growth year-over-year as parents seek more ways to keep their kids fit and introduce new sports to their families," Fiume says. "As franchise owners, i9 Sports Area Developers are providing an outlet to get kids moving yet they still have the flexibility and work/life balance they seek."

He says the industry is also "ripe" for reinvention. "Most youth sports programs today are disorganized and highly political. Well-run programs like ours stand out and gain a quick following," Fiume says. 

5. Real Estate

Service-based businesses are popular franchises to open, especially post-recession, considering the lower startup costs.

The real estate sector is poised for growth. Linked to the housing recovery, the number of real estate franchises is expected to rise 1.6% in 2013.

According to the IFA forecast, sales of new homes is expected to rise by 19% in 2012. Sales of existing single-family homes, co-ops and condos are forecast to be up 8.5% in 2012 and 8.9% in 2013.

"People don’t think about real estate brokers as being franchises," says Matt Haller, spokesman for the IFA. "That’s a huge opportunity for people that want to get into [real estate] because people are buying homes again. Every month the numbers seem to continue to get better again."

This article was republished with permission from TheStreet.


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