The International Franchise Association’s annual Economic Outlook Report, released Tuesday, provided data to support what’s been a common anecdotal story of late—franchise job and unit growth are outpacing 2019 levels. As uncertainty and instability continue to challenge retail, entrepreneurs are turning to the franchise model for its collective strengths and ability to leverage scale against external pressures. “Even with today’s economic headwinds, franchised businesses continue to grow, providing more good-paying jobs for their employees, and serving their local communities,” IFA president and CEO Matt Haller said in a statement. “After an historic year of growth during the post-pandemic recovery, the size of the franchise economy in 2023 will exceed pre-pandemic levels—demonstrating the power of the business model for prospective business owners when franchisors and franchisees work together.”

Notably, service-based industries and quick-service restaurants are projected to witness higher growth than other sectors. The overall number of franchise establishments will increase by nearly 15,000 units in 2023, or 1.9 percent, to 805,000 units in the U.S.

The quick-service franchise field is projected to grow 2.5 percent (as is “personal services”).

This would bring the quick-serve space from 192,057 franchise units to 196,858. In 2020, the figure was 183,543. It was 188,402 the following year.

Franchise employment in quick service should increase by 2.5 percent in 2023 to a total of about 3.9 million employees. In 2020, 2021, and 2022, that came in at 3.55 million, 3.73 million, and 3.8 million, respectively. Quick service accounts for 45.3 percent of all franchise employment in America (8.7 million). Full-service restaurants, 12.8 percent. “Despite a decline in consumer spending, [quick-service restaurants] will continue expanding, due to the strong demand for food deliveries,” the IFA said. “Moreover, during anticipated economic uncertainty, consumers are more likely to cut their ancillary spending such as eating out and prefer more economical options that [quick-serves] offer, including economical menu options and value meals.” Hence, why the sector’s franchise employment is expected to bump 3.5 percent.

MORE: Check out last year’s report

Additionally, 2023 will see the overall quick-service industry output increase from $275 billion to $287 billion. “2022 was a challenging year for [quick-service restaurants] as they were impacted by supply constraints, labor shortages, and high inflation,” the IFA said. “Many brands fared well in the challenging environment as they focused on innovating and adapting to the changing preferences of their customers. These brands will continue to drive growth in their industry and attract both consumers and franchisees.”

The full-service industry is expected to reach 33,240 franchise establishments, up from 32,879 (1.1 percent growth). Expansion has inched upward from 2022 (31,004) and 2021 (32,027). The sit-down arena is also predicted to employ 1.1 million people across its franchise holdings. Those numbers in the past three years have been 1.098 million, 1.06 million, and 923,097, respectively.

Beyond outpacing pre-pandemic growth, this year’s data also shows restaurant recovery approaching full circle. Here’s how franchise establishments have tracked:

2018

  • Quick-service restaurants: 194,395
  • Full-service restaurants: 32,843

 

2019

  • Quick-service restaurants: 196,794
  • Full-service restaurants: 33,160

 

2020

  • Quick-service restaurants: 183,543
  • Full-service restaurants: 31,004

 

2021

  • Quick-service restaurants: 188,402
  • Full-service restaurants: 32,027

 

2022 (estimate)

  • Quick-service restaurants: 192,057
  • Full-service restaurants: 32,879

 

2023 (projected)

  • Quick-service restaurants: 196,858
  • Full-service restaurants: 33,240

 

So quick-service restaurants are now on track to surpass 2018 numbers this year (196,858 versus 194,395) and clip 2019 (196,858 versus 196,794). Full-serves are just about pacing to where they were pre-virus for 2018 (33,240 versus 32,843) and 2019 (33,240 versus 33,160).

The output of quick-service restaurants is projected to increase 5.1 percent in 2023, the IFA added. Here’s how that’s progressed:

2018

  • Quick-service restaurants: $256.6 (billion)
  • Full-service restaurants: $73 

 

2019

  • Quick-service restaurants: $267.9
  • Full-service restaurants: $76.5

 

2020

  • Quick-service restaurants: $241
  • Full-service restaurants: $55.1

 

2021

  • Quick-service restaurants: $261.2
  • Full-service restaurants: $72.8

 

2022 (estimate)

  • Quick-service restaurants: $275.7
  • Full-service restaurants: $76.5

 

2023 (projected):

  • Quick-service restaurants: $289.6
  • Full-service restaurants: $78.2

 

Those projections are well ahead of 2019 for quick service and slightly over for full service. But the positive spin on the latter is it’s a massive uptick from the $55.1 result of 2020. Table-service franchises rebounded from 2020 into 2021 and have continued to climb, albeit at a slower rate than quick service.

“The most common technology adopted by franchised businesses that have helped drive growth include: kiosk ordering and digital payments; artificial intelligence software to track inventory and forecast future sales; online training combined with on-site training programs; delivery apps and voice ordering technology; technology to gather customer insight for effective sales and marketing campaigns; AI to segment customers and increase the variety of loyalty programs; and better site selection using data and analytics that incorporate demographics, competition, customer behavior, and other critical information,” the IFA said.

These innovations are bearing results, and are only likely to accelerate. According to the 2022 IFA/FRANdata Franchise Inflation Survey, 67 percent of quick-service restaurants expect cost impacts to worsen in 2023. Eighty-eight percent of respondents identifying labor challenges as major growth hurdle (more on that here). “To attract and retain talent, restaurants are looking to increase employee benefits and other incentives to increase overall job satisfaction,” the IFA said. “Because both industries are unable to otherwise lower their costs, they have introduced solutions like in-app loyalty programs, reducing portion size, and corresponding pricing adjustments amid the current economic climate.”

Ninety percent of quick-service franchisees in that same survey said they experienced increased costs for inventory. But demand is humming along—per the National Restaurant Association’s State of the Industry Report, 84 percent of consumers prefer going out to eat with friends and family over cooking and cleaning at home. “With a rise in customers working from home, many look to [quick-service] and table/full-service restaurants as a way to get out of the house,” the IFA continued. “Similarly, the aftermath of COVID-19 has allowed restaurants to become a community meeting space for their customers. This is illustrated by the rise in ‘eatertainment,’ or food being served alongside a form of entertainment.”

The IFA believes 2023’s growth will owe to an increase reliance on tech and focus on order online/pickup option, as well as a consumer base that continues to favor eating outside of the home. Here are some post-COVID trends the company feels will continue throughout 2023:

  • Online food delivery with third-party delivery apps will continue to rise. In addition, many customers are now choosing pickup over delivery.
  • Ghost kitchens that offer multi-restaurant selection will grow exponentially in the coming years.
  • Brands will rely on automation and innovation to achieve operational efficiency. • Inflation and input cost increases will continue to pressure profit margins.
  • Supply chain and labor-related costs will drive up menu prices.
  • Employee hiring and retention issues will continue to challenge employers.
  • Digital menus, such as QR codes and self-order kiosks, will be adopted industry wide.
  • Restaurant layouts tailored solely to pickup orders will continue to emerge.
  • Technological integrations will increase at all stages of the customer’s experience—from order placement to payment.

 

As the restaurant industry continues to open new units, its biggest challenges will come in the form of inflation, expensive real estate, wage increases, and rising borrowing rates, the IFA added. “In many cases, the initial investment costs have increased by more than 30 percent,” it said. “The average time needed to launch new units has also increased due to high costs combined with a labor supply shortfall, which has added to higher interest costs.

Emerging Concepts, Fast Food, Franchising, Growth, Operations, Story