Franchise country: we hit the road and went in search of the hottest trends in franchising, from the mountains to the prairies

Entrepreneur, June, 2003 by Todd D. Maddocks

I'M IN DANGER. MY CAR IS ROCKETING SOUTH through the heart of Texas, on I-35, one of the busiest highways in the country. This ugly, congested slab is a huge distribution channel connecting Mexico to the heart of the United States. It's a place where countless pickup trucks blast past hardworking drug dogs, amid a sea of looming 100-foot-pole signs, screaming for business. My orders from Entrepreneur were succinct: Go forth into the countryside, perform reconnaissance on "hot trends," and file a scouting report about my firsthand look at the franchise landscape.

The fuel light is blinking, and my stomach growls. I'm on a road trip from Dallas to San Antonio, Texas, to attend the International Franchise Association's 43rd annual convention, My own road rules have put me in danger--namely, that during my travel odyssey, I would not patronize any franchise brand that I had previously patronized. That's why I'm hungry and running out of gas, just four hours into my quest. It is both a tremendous privilege and an incredible burden to report on franchise trends. The IFA says franchises exist in no less than 75 different industry categories, and, if I wrote about a different concept each day of the year, it would take me about 13 years to cover the industry. So while it is a little precocious of anyone to tell you the best gamble of your nest egg for a franchised business, the IFA's annual convention is a great place to start getting some ideas. This year, approximately 1,600 franchise professionals attended the convention. It's a great place to attend seminars and listen t o compelling speeches, but the real gold is dispersed in the quiet conversations of the inner circle that take place during the breaks.

Whispers in the Halls

My colleagues have spoken to me in confidence, and I'm not going to sugarcoat it for you. Anyone who buys a franchise to operate in this country must be prepared to engage in hand-to-hand combat with the competition. Franchising is so popular in the United States that we have placed a discount haircutter and a 99-cent cheesburger place on virtually every corner.

An annual franchise study published by Franchise Recruiters Ltd., a Chicago-based executive search firm, indicates that "expensive market share battles persist in regional and national segments and will inevitably cause strain on net unit system growth." The competition on the block is so strident, the pros in the franchise industry are looking to international markets for real system growth. Frankly, the buzz is that those who can open the doors to China and other Asian countries will experience a fabulous rebirth of their concepts. It's now a very small world indeed, and the perception among franchisors is that the really good grazing seems to lie in distant lands. However, don't be discouraged if you don't speak Cantonese--there are still ways you can make money on our soil.

What would you think ff1 told you frozen yogurt is a really hot concept? Today, you might choke at this advice, but had I written this story in 1998, you may have dipped into this philosophy. Just four years ago, the franchise pundits were extolling the virtues of owning a yogurt store such as TCBY or Yogen Fruz Worldwide. These concepts had grown for years, so much so that Yogen Fruz was named as the number-one franchise in Entrepreneur's Franchise 500 (R) for 1999. But today, frozen yogurt franchises are on the decline in this country. For example, in 1998, TCBY was reported to have 2,696 units nationwide, and Yogen Fruz claimed 2,089 domestic franchises. In 2002, TCBYs figures dropped to 1,631 franchises, while Yogen Fruz downsized to 1,687 franchises.

So how can you tell whether a franchise will have long-term success? The common consensus about earning a good income over the next 15 years revolves around a single irrefutable fact: A tremendous number of baby boomers are going to require support, comfort and fulfillment in their golden years. According to the U.S. Census Bureau, the country will continue to see an increase in the population of 55- to 70-year-olds. If you can find a concept that meets their needs, you may find yourself in the right place at the right time.

Another phenomenon taking place is the rise of the fast-casual dining segment. Years ago, places like McDonald's and Burger King were considered to be fast-service hamburger joints. Now my peers are referring to these outlets as "discount" fast food. In the new void between discount food and casual restaurants such as TGI Fridays, a breed of quick-service restaurants is evolving. Why are customers lured to these concepts? There's no tipping, the food is fast and fresh, and the atmosphere is trendy and fun. These concepts include Qdoba Mexican Grill and Moe's Southwest Grill, which, in essence, offer Tex-Mex food like burritos for less money than a full-service restaurant. However, this early success is already subject to attack, as new competition will come from Baja Fresh, which was acquired last June by Wendy's International. According to Cheryl Mullin, a franchise attorney in Dallas: "This is the essence of competition. When the new kids strike upon something exciting, the big boys will step in and give it a run."