Franchise frenzy

Entrepreneur, Jan, 1997 by Janean Chun

Someday in the future, when people look back on the time line of franchising, they'll likely recall 1996 as a turning point. New trends, concepts and ways of operating were springing up left and right; meanwhile, in the legal arena, franchisors and franchisees alike were rocked by a series of surprising events. Here, a look at what's new . . . and what the future may hold.

Now that rotisserie chicken, bagel and coffeehouse franchises have gone from new kids on the block to industry staples, what concepts will emerge in 1997? After spending considerable time combing through industry data, compiling a massive database and going to sleep with visions of franchise trends dancing in our heads, we've chosen a few concepts that are emerging from the pack;

* Internet franchises. "Companies are getting involved in franchising from the standpoint of home page development or other services," says Mark Siebert, president of Francorp Inc., an Olympia Fields, Illinois-based management consulting firm specializing in franchising. And the timing for these cutting-edge franchises is impeccable: About 40 percent of large companies and 25 percent of medium-sized and small businesses have either developed or plan to develop Web sites, according to market research firm O'Reilly & Associates.

* Senior services. Surely we needn't tell you again about all those baby boomers naming 50 last year. Franchises are already targeting the 50-plus crowd - services such as financial planning for retirement and care facilities for Alzheimer's patients should mature in 1997. Meanwhile, residential elder-care facilities, which have been cropping up since the late '80s to provide an apartmentlike alternative to traditional retirement homes, are starting to catch on with franchisors.

* Juice bars. After hitting it big in California, juice franchises are starting to branch out to the rest of America. They are, however, expected to do well only in regions that boast young and affluent consumers, and, in most cases, they require a warm climate to ensure availability of produce.

* Water stores. With consumption of bottled water hitting $3.4 million in sales last year, some believe water is the only beverage strong enough to rival coffee franchises in the future.

* Specialized staffing franchises. According to the National Association of Temporary and Staffing Services, receipts in the specialized staffing industry rose to $20.8 billion in the first half of 1996, offering franchises a ripe market. Many staffing franchises have also added employee leasing to their repertoire.

* Children's activities. Franchises that blend education with fun are still hot, as are a variety of cutting-edge child-related businesses, ranging from baseball camps to Victorian tea parties. Children themselves are proving to be no minor market - they make or influence almost $150 billion in purchases each year.

* WAYS AND MEANS

Trends in franchising are extending beyond mere products to include systemwide changes in ways of doing business. Among the most promising changes taking place are:

* Internet franchising. "It's the beginning of the franchisor Internet explosion," says Siebert. "We're seeing a significant increase in both intranet pages as a means of communicating within franchise organizations and Internet advertising by franchises."

* Globalization of franchising. Many franchisors overseas are either expanding vertically (growing rapidly in certain narrow industries such as fast food or retail) or horizontally (when many smaller U.S. franchisors enter the market).

* Homebased franchises. Siebert calls growth in this sector "explosive," more than doubling in the past two years. Many of these franchise opportunities exist in business-to-business services, which are usually direct-sales franchises.

* Rural franchises. "These smaller markets have been ignored for years and are fertile ground if you can develop a concept that works there," says Siebert. The key to success in rural markets, he believes, is the ability to provide quality services combined with lower start-up costs so the franchise can prosper even with lower levels of unit volume.

* Infinite distribution points. "Years ago, we never dreamed you could purchase pizza over the Internet or be served a McDonald's hamburger on an airplane," says Janet Sparks, publisher of the Continental Franchise Review newsletter. "There are so many nontraditional ways of franchising now, there's no telling what the future might bring."

* LEGAL EAGLES

When it comes to legal and regulatory issues, 1996 was "a watershed year," says Robert Purvin, chairman of the board of trustees of the American Association of Franchisees and Dealers (AAFD).

This year, the traditionally franchisor-friendly courts warmed up to franchisees and set out to tackle the big stuff: encroachment, franchisee termination and advertising funds. "Suddenly this summer, we saw a spate of franchisee-sensitive court decisions," says Purvin. "It was unprecedented in terms of the number of significant cases, which is an indication of the shifting of public opinion and increasing empathy for the franchisee's perspective."