Two franchise consultants give the scoop on how to thoughtfully approach trending concepts and choose a brand that will outlast the inevitable consolidation.
Have you ever walked past a row of similar trendy franchise concepts—fast-fired pizza, fro-yo, boutique fitness studios, for example—and wondered: How long until this bubble bursts?
“Franchisees see a booming trend, and they want to take part in that,” said Jon Pace, President of On Pace Franchising. “But a lot of times the franchisees don’t realize that the growth has already plateaued so much that the market is saturated with competitors.”
Sound familiar? The truth is that this cycle of trending concept—>oversaturation—>consolidation is quite common in the franchising world.
“There are always times when industries slow down or consolidate. They are still viable, but they just need to be approached properly,” explained Mario Altiery, CEO of Upside Group Franchise Consulting. “If you look back to the printing industry, it grew like crazy, then consolidated aggressively. Now, going into printing isn’t the best idea, but you can still do it; there are still people buying Minuteman Presses and Kinkos is still open. Strategically, with the right situation and with the right research, you can make any industry work, even if it’s gone through consolidation.”
When the buzz fades
When franchises start selling units more quickly than they can open, the buzz can certainly backfire.
“When major growth is occurring, franchisors need to be very selective,” explained Pace. “There are only so many units a franchise can sell in top territories, so they may as well slow down.”
Altiery pointed to fro-yo as a prime example of a well-publicized crash that was mistaken for a decrease in demand. He noted that closures are often blamed on the faults of an industry, when in fact, they could have been a result of poor planning, execution and awarding units to the wrong franchisees.
“We’ve twice seen fro-yo explode, then settle down and consolidate,” he said. “It was not necessarily for reasons people think. People are still eating fro-yo as they always have; it’s more that sometimes the trending industries attract a less experienced franchisor who jumps in and makes mistakes that they wouldn’t have made if they’d grown at a reasonable pace.”
What buzz has staying power?
When a gaggle of competition moves in, a select few leaders rise to the top, and those are the concepts that stick around for years to come.
Brands that having staying power take a thoughtful approach to growth. “Strong brands have a growth process in place that’s proactive instead of reactive,” said Altiery. “You have to look at the industry, and at the franchisor, to see if they're positioned well and if they’re a company that’s thoughtful in decision-making so that if things do change, they are able to adjust and go with it.”
In the end, the brands that fall in the middle and bottom of the pack end up getting hit the hardest.
“Those well ahead of the competition will welcome consolidation,” said Altiery. “As the buzz gets super noisy, the best rise to the top and stay there—and when consolidation happens, those clients go to established, strong brands that have been tried and true for last decade or two.”
The current state of buzz-heavy concepts
Several industries likely come to mind when you consider what businesses are currently booming, from boutique fitness brands to doggie daycares to health and wellness concepts.
“Boutique fitness brands will grow for another 10 to 15 years at least, and then there has to be a consolidation,” predicted Altiery. “Alternative diet concepts—vegetarian, vegan, paleo—will grow for another 15 to 20 years as people adjust how they eat. Pizza and burgers will not go away, but there will be fewer. We will see salad concepts, meat-heavy ones, several different diet concepts grow then consolidate as we see what people are choosing to eat.”
Overall, most industries will grow and then consolidate—that’s a given.
“If you’d told a 50-year-old American who grew up with Burger King, McDonald's and Wendy’s that there would be Smashburger, Five Guys and another 25 hamburger brands with thousands of units today, they would have said that you sounded ridiculous,” he said. “I think there’s an overreaction when brands are hot—and even later on as well.”
Choosing a brand with lasting buzz
Certainly, there are many positive reasons to getting in on a buzzworthy industry. Just tread thoughtfully and do your due diligence.
“Dive deep into the brand’s culture to confirm that it’s not just a culture of selling franchises,” said Pace. "The franchisors that offer huge deals or fly you out to some flashy event are the ones that are throwing down red flags. They shouldn’t be going above and beyond to sell you. That’s not what you’re looking for. Hear from franchisees that it’s continuing to be the strong growth trajectory that you think it is.”
Put on your customer experience hat and shop around from a buzz-minded consumer, too. “In trending industries particularly, you want to try out as much as you can and see for yourself what the difference is from one concept to the next,” said Pace.
Finally, remember that as a franchisee, the success of your business doesn’t just fall on the brand’s shoulders alone. Take responsibility for your decisions and move forward confidently.
“You want to be in a white-hot industry with a brand that brings attention to the fact that it’s better than others,” said Altiery. “If you're in an industry that’s been growing for a while, be conscious and cautious. Don’t be starry-eyed about it, and realize that if the inevitable consolidation or natural slowdown happens, how would it affect you?”