Buying a Franchise, Restaurant Franchises

Franchise Restaurants a Bright Spot

restaurantHow are U.S. restaurants doing? Not very well. Restaurants in general show a 1% decline since last year at this time. That means quite simply that there are 1% fewer restaurants in America today than there were a year ago. While many restaurants opened and many closed, the total number after it all shakes out is 99% of the total number last year. Doesn’t sound like a big difference, does it?

Break out the data and the picture looks a little different.

Independent restaurants declined by 3%. Chains increased by 1% on average, with quick casual franchise restaurants showing an increase of 7% over last year.

Interestingly, the number of visits to restaurants is about the same, and revenue is higher. Americans are just going to franchise quick casual restaurants rather than to independent full service restaurants.

But there’s a quandary here. Since the data shows the number of restaurants open, we can’t tell for sure whether the independent restaurants closed because the diners chose to go to chains, or if the diners went to franchise restaurants because the independent restaurants closed.

While there’s a bit of the chicken and the egg question to the story, most commenters figure the independent restaurants had to shut down for financial reasons, and the franchises were able to weather the storm. Independent restaurants, and especially the full service “family dining” style restaurants, have been declining for several years.

Greg Starzynski, the director of product management for NPD Foodservice, the organization that conducted the research, has a suggestion about the reason. “Independent operators do not have the resources of a chain to sustain themselves in slower times,” he said.

Franchise restaurants have more support and advice, in addition to the name recognition and business systems that generally give franchise businesses an advantage over independent companies.

However, there are some observers who see something else in play. Restaurants that close, they suggested, tend to have an old-fashioned business model and a style that doesn’t appeal to the modern consumer. Franchise chains that haven’t kept up have also seen declines.

But a franchisor with a responsibility to franchisees may be less likely to ignore changes in the market that an independently owned restaurant. Bob of Bob’s Diner knows and loves his customers, but he may not keep up with trends. He’s sure that his customers don’t want kale salads or gluten-free options, and the menu has been just fine for 30 years. Why change it now?

Fran of Francesca’s Fine Dining may make a different set of errors. She might have opened with a vision… but unfortunately not a vision that her customers shared. People came to try out her restaurant, but pretentious dishes and long waits kept them from coming back. Fran kept waiting for her restaurant to catch on, but quick service franchise restaurants with tasty, familiar offerings won out.

A restaurant like Fran’s never becomes a franchise. Franchise businesses build on success, and that didn’t happen for our fictional Fran. Fran and Bob, however, are fairly accurate representations of the kinds of issues that are common for independent restaurants, but not for franchisees.

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