Sponsored Section: Franchise Outlook
A slowly improving economy and gradually easing credit market figure as the biggest influences in franchising in 2010.Morereadily available loans make purchasing a franchise possible for more people,saysfranchisingconsultantMichaelSeidof WestHartford, Conn. And lingering high unemployment and uncertain employment will continue to make owning a franchise look like a way out of the employment rat race.
"People will start to look at alternatives," says Seid. "The natural alternative is the great American dream of business ownership. That's when franchising starts to become attractive." Seid, who bases his forecast on experience in franchising during past recessions, says continuing tight credit makes this one different. But he expects banks to start lending again."Once that happens," he says,"then we're back in a normalrecovery cyclefor franchising and small business development."
Demographic and other trends will play major roles in deciding which opportunities will be the ones to watch. Seid expects to see robust interest from consumers and franchisees in child and elder care, moderately priced but high quality family dining, and medical care.
Investors stung by market downturns and suspicious of Wall Street scandals are looking closely at owning businesses as investing alternatives, Seid continues. That should fuel growth of multi-unit franchise organizations.
Finally,he expects major consumer brands that have previously relied on corporate-owned locations to get into franchising in a big way. Seid says he's already working with some, although hewon't name names."These are major brands thatyou likely shop at every day," he says. "They're in retail, high tech and a whole slew of places."
With so many opportunities, there are myriad franchises that seem to be weathering a tough economy and appealing to consumers'needs. Take Anytime Fitness. The Hastings,Minn., health club franchiser expanded from 593 to 958 locations in 2008. In January 2009, it opened its 1,000th club, just seven years after its first. Mark Daly, national media director for the company, says Anytime Fitness is now the planet's leading co-ed fitness chain.
"We currently have more than 1,200 clubs open in 48 states, Canada, Australia, and New Zealand," Daly says. " By the end of the year, we will also have clubs open in India and Mexico -- and our expansion plans extend all across Europe, Asia, Latin American, and the Middle East."
Anytime Fitness offers consumers a good fitness value with convenient hours and locations, knowledgeable staff, and in-demand equipment, Daly says. Franchisees like the chance to make a good living helping people achieve health and fitness goals. Integrated security and usage-tracking systems reduce the need for employees, improving profits. As a result, Daly says, most franchisees own two or more locations. And most are pleased with the opportunity."For two years in a row,Anytime Fitness has won top franchisee satisfaction honors from Franchise Business Review," he notes.
Another health-conscious choice is Tasti D-Lite. Tasti D-Lite isn't exactly a household name -- yet. The frozen dessert retailer has, however, been around since 1987, and its combination of taste and low calories helped it achieve near-cult status in New York, where it all began. After a private equity firm bought the company in 2007, franchising veteran and former Mail Boxes Etc. CEO Jim Amos came on board to help bring Tasti D-Lite to the world.
Amos believes Tasti D-Lite has what it takes. "It is a guilt-free indulgence, which is particularly important in these economic times, and a healthy alternative at a time when obesity has doubled over the last 30 years," says Amos, CEO and chairman of the Franklin, Tenn., franchiser.
Perhaps that's why even financing constraints have not stifled Tasti D-Lite. After beginning franchising in 2008, Tasti D-Lite now has 55 locations, mostly in New York, but also Houston, Nashville, and Sarasota, Fla. By the end of 2009 they will have added Scottsdale, Ariz.;Boynton Beach,Fla.; Darien, Conn.,and Mexico City.Amos has targeted five regional markets--Atlanta, Boston, Dallas, Southern California, and Seattle -- as priority areas for development. "As we work toward our goal of building a 500-center global franchised network, we expect to nearly double in size from 2009 to 2010,"he says.
On the entertainment front, DVDNow, a North Vancouver, B.C., company that sells self-service movie-rental kiosks as business opportunities, appeals to consumers' cost-conscious side. Approximately 1,500 kiosks are operating, primarily in the United States, and recently the company began offering the opportunity to independent owner-operators. CEO Scott McInnes says the business appeals to movie-loving business types who want to latch onto a trend, including some who have hundreds of thousands of dollars to spend on a fleet of kiosks, as well as those who want to start small with a single unit.
"From an investment perspective there are not many "real" businesses that you can start for under $25,000," says McInnes. Another plus: since renting DVDs counts as relatively inexpensive entertainment, sales are counter-cyclical to the economy. "While mostbusinessesaresufferingfrom the currenteconomicsituation, our kiosks have actually experienced a dramatic increase in rentals during the recession,"McInnes says.
Next year, McInnes expects kiosks to take additional market share from retail stores. DVDNow will also reach into new markets, and fine-tuneitsbusiness model."In 2010 we are scheduledto deploy our first kiosks into Ireland and the United Kingdom," McInnes says. "We will also be introducing several new ways to increase revenue from existing kiosk locations, including several different types of membership and subscription programs."
Unlike video renters, most video game retailers have not seen sales hold up well during the recession. However, game store chain Playntrade has been successful finding other sources of revenue to help franchisees through the trough, says Larry Plotnick, CEO of the San Clemente, Calif., company. How? The company has grown its used game business as well as repairs and other pay-to-play services , which appeal to value-conscious consumers while offering franchisees much higher margins. And recently, some intensely awaited new games plus lower gaming console prices have combined to help sales turn around, a trend Plotnick sees continuing through the holidays and into 2010.
Playntrade's 240 locations make it the largest locally owned and operated chain in the industry. Special consumer features include being a true "try before you buy" seller, with up to 10 interactive stations in each store where gamers can test games. It also is the only large chain to offer retro games, tournaments, parties and events, and the only one that allows customers to test out online games.
Plotnick says Playntrade's stores appeal to not only the core young male gamers but also the key growth demographics such as families, woman, and those over age 50. This opportunity appeals to business people as well as game lovers. For next year, Plotnick is focusing on helping current franchisees grow and develop their businesses. The company is rolling out a new franchisee support technology package, and improving its unified buying program. "Outside of that, we expect to see 100 new stores at a minimum in 2010," he says.
While video game franchisees buck industry trends,the familiar theme of recession resistance underlies the attraction of Fiesta Insurance Franchise of Huntington Beach, Calif., which sells auto insurance and tax return preparation franchises. President John Rost says macroeconomic cycles barely affect Fiesta."Most states requires drivers to have some form of liability insurance," he notes."And these days tax preparation is more important than ever due to the complexity of the tax laws. So we feel very good about the future."
In fact, Fiesta's existing store sales comparisons have climbed throughout the recession, Rost says.Part of the reason is that Fiesta offers two revenue sources rather than one. Insurance helps ease the seasonality of tax preparation, Rost says, and also creates stronger ties with clients than tax-only businesses."You have the opportunity to build that relationship with the customer on a monthly basis throughout the year,"he says.
Fiesta began the year with 23 locations and will have 80 by the end of 2009. Rost thinks the growth will continue as they add more than 100 locations in 2010."We're looking at having somewhere around 200 atthistime nextyear,"hesays.
If there's one business that grows regardless of economic trends, it's health care.When you add in low start-up fees and a carefully structured growth program, you get GUAVA Senior Home and Healthcare Services, Inc. Mary Schreiber, founder of the Hockessin, Dela., company says franchisees can start working from home providing non-medical in-home geriatric to pediatric services and transition into an office providing complete medical in home care and staffing.
Her Building Block Healthcare System is designed to take franchisees step-by-step throughjust such a process."We have a strong leadership marketing technology and training component that also add tremendous value to our franchise system," Schreiber adds.
GUAVA is a brand-new franchiser, with two locations in place so far.Schreiber has assembled a development team that envisions five units by the end of 2009,and 25 by the end of 2010.Schreiber bases her prediction on GUAVA's unique building block business model, a careful selection process to identify the best-qualified franchisees, plus the power of demographics.
"I see healthcare as one of the largest growth industries with more than 12 million Americans requiring some long-term care," she says. "As many as six out of every 10 Americans have family members or friends requiring long-term care services and eight out of every 10 would prefer to have care provided at their family member's home," Schreiber adds.
Darwyn Williams might actually prefer to have the recession continue. "Companies across America are still looking desperately for ways to reduce expenses,"says the founder, CEO and president of Environmental Waste Solutions, a waste and recycling consulting company in Baton Rouge, La. "And companies continue to be hyper focused on profitability. There are only two ways to do that-increase revenues, which most can't do, or decrease costs, which is what we bring, so the outlook is extremely positive for us."
One secret to Environmental Waste Solutions' customer appeal is the fact that the company's consultants don't charge their clients any upfront fees, taking only a percentage of the money they save them by right-sizing their waste and recycling operations. If there are no savings, customers pay nothing.
Williams'more than 500 affiliates across North America should generate up to 40 percent growth in revenues next year, he says. "Fortunately for us, and the affiliates we train, the outlook in 2010 for this is continued explosive growth," he says. "I can't define it any other way."
Franchise consultant Seid is not quite that optimistic, but he does expect credit to ease, which, with continued high unemployment, could lead to booming demand for business opportunities that could surprise a lot of people."I'm much more upbeat than most," says Seid "I view the banking situation as a minor blip. The dam is going to break."