Restaurant franchisees admit they are feeling compelled to grow their businesses during 2019, according to a survey conducted by TD Bank, America's Most Convenient Bank, at the most recent annual Restaurant Finance and Development Conference held in Las Vegas, Nevada. Nearly three-in-four respondents (71 percent) claimed that they are under pressure to expand, with bank financing being the most popular method to fund this growth.
Restaurant franchisees stated they may be looking to drive desired growth by ramping up delivery service methods, offering unique value meals, and investing in store reimaging and mobile technology.
Franchises Deliver on Customer Experience
In the age of on-demand food delivery, it comes as little surprise that 78 percent of survey respondents say their restaurant has a delivery strategy. More than half (60 percent) of respondents noted their restaurants rely on third-party delivery services such as Postmates, Grubhub, Uber Eats, etc., to service their customers, while 18 percent have an in-house delivery service. Twenty-two percent of restaurant franchise owners reported they do not have a delivery strategy, although 12 percent of those plan to implement one soon.
Consumers love a bargain, and restaurant franchises are responding to demand. The survey found that value meal programs are currently offered at 60 percent of the restaurant franchises polled. Despite the popularity of value meals with consumers and the strategy's ability to drive traffic, not all franchisees are happy with the impact that their brand's value meal offerings have on the business’ bottom line:
- 22 percent of respondents said that despite value meal programs boosting revenue, they are hurting overall margins; however, only 3 percent claim value meals are decreasing revenue to the point that they prefer not to have a program
- Of the 40 percent who do not have a value meal offering in place, only 8 percent plan to implement one
- 20 percent of respondents who do see the benefit of value meals say they are increasing foot traffic and customer base
“Many franchise restaurants find that value meals are expected by consumers and are necessary to generate traffic vital to their business, even though they can be a source of frustration for business owners who discover that value meal margins are thin," says Mark Wasilefsky, head of Restaurant Franchise Finance Group at TD Bank. "To really increase revenue in a finite market, franchisees should implement delivery if they do not already offer that service. Ignoring this trend will probably hinder those who do not participate from meaningful growth."
Technology Drives Loyalty and Retention
The customer experience extends to integrating technology as part of the dining experience, with mobile ordering continuing to greatly influence business operations. In fact, 61 percent of survey respondents believe mobile ordering could expand their customer base, a 6 percent increase from 2017. This is likely the reason why 42 percent of respondents plan to invest in mobile ordering in 2019. Franchisees also believe that mobile ordering has the potential to speed up the food preparation, cooking and delivery process (17 percent); and reduce staffing costs (13 percent).
This year, 57 percent of franchise restaurants reported plans to spend on store reimaging and remodels and 49 percent will spend on technology investments such as a new POS system, digital signage or other tech. While environmentally conscious initiatives like eliminating straws have driven headlines, only 9 percent of franchises plan to invest in this area.
“Investments such as renovations and technology require large amounts of capital, but often bring a positive long-term return in business growth, and owners who aren't spending in these areas are likely to lose,” Wasilefsky says. “While environmentally friendly initiatives gain public goodwill, they do not yet tangibly impact profitability, which may be why they are not a higher priority in terms of spending.”
TD Bank polled a select group of owners, operators and executives of multi-unit restaurant companies — both independent and franchised — at the annual 2018 Restaurant Finance and Development Conference held Nov. 12-14, 2018, in Las Vegas. A total of 269 individuals were polled.