“Indulgent” food franchises tipped to benefit from tough times
According to Jason Gehrke, director of the Franchise Advisory Centre, the entertainment category typically performs well during tough times because it provides a form of escapism.
Within this category, Gehrke says food franchises are one of the most obvious choices for consumers because “a bucket load of KFC is a pretty good form of escapism”.
Gehrke’s comments come on the back of an announcement by retail food franchisor Retail Food Group, the company behind the Donut King, Michel’s Patisserie, Brumby’s bakeries, Esquires Coffee Houses and bb’s café.
RFG has posted a net profit of $27.9 million for the 2011 financial year, up 4.6% on 2010. The record profit was achieved despite 193 RFG outlets being hit by floods and Cyclone Yasi.
According to the company, the result would have been as much as 15% higher without the weather-related disruptions.
RFG chief executive Tony Alford said the company’s performance is a testament to the effectiveness of its business model and franchise systems.
“Notwithstanding the natural disasters and not insignificant retail headwinds, combined franchise system network sales increased $10.5 million over fiscal 2010 to $651.1 million,” Alford said in a statement.
“Forty new outlets have been established, thus validating the continued relevancy of our franchise systems to the consumer as well as the new franchisee candidate market.”
Gehrke believes food franchising has a positive future because “well-organised, well-branded, well-marketed networks will always resonate with consumers”.
However, he does believe that some franchises could perform better than others in light of growing economic uncertainty.
“Is there a particular category I would nominate? The ones that are more indulgent than others in terms of their menu offerings,” he says.
But ultimately, Gehrke says success comes down to due diligence.
“I see the consequences of people who have committed to a business decision without undertaking the appropriate due diligence, and look to lay blame with the franchisor or the franchisor’s business model,” he says.
“For anyone considering investing in a food franchise at the moment, they should be looking for the track record of growth, particularly same-store sales growth.”
“The Franchise Advisory Centre has come up with a golden rule: spend one hour of time researching the business for every $1,000 to be invested in the business.”