In tandem with this year’s upcoming QSR Best Franchise Deals (going live in early September), we tapped the insight of our Council of industry leaders to gather thoughts on larger trends and what’s ahead. The first in a series of articles will tackle the question, “what is your high-level view of the restaurant franchising space right now, and what are some of the challenges and opportunities at hand?” The next will address what’s separating the winning and struggling brands in the market.

Here were their answers:

Graham Chapman, CEO, ZorForum

All industries, including food/restaurants, seem to be contending with the same three questions—one, how do we integrate the right AI/technology into our business; two, how do we combat consistent inflation, high interest rates, and an uncertain economy; and three, how do we attract/keep talented team members at a reasonable salary/hourly rate?

Restaurants, specifically, face interesting dilemmas on a related, more granular note. How do we keep prices competitive amidst never-ending inflation/salary demands? How do we balance the financial/operational gains of AI/robotics with the culture expectations of franchisees/team members and customer service needs of customers? How do we navigate a challenging real estate and lending environment to grow our footprint with the right franchise owners without making the pervasive SNO (sold, not open) issue worse?

Matt Martin, CEO, RocketBarn

Some of the greatest challenges facing this space right now are labor attraction and cost, as well as rising food costs and other economic uncertainties; such as high interest rates and inflation affecting consumer spending. Opportunities lay in the fact that QSRs serve a continued demand for quick options in a fast-paced world, particularly when technology is leveraged to create a faster and easier experience for customers, such as ordering, payment and loyalty solutions. Technology can also be leveraged to improve efficiencies and gain back margins from other areas that have become more challenging.

Michelle Rowan, president and COO, Franchise Business Review

Consumer increased demand for “healthy and quick” has led to franchises catering to more individual preferences. There is also an increase focusing on sustainability with more focus on reducing waste, packaging used, energy efficiencies.

Tim Parmeter, founder and CEO, FranCoach

AI and technology in QSR is leading the franchise space in ways it can help brands and franchisees to focus on operational efficiencies, on customer experience, and help them grow. In many ways, the restaurant franchise industry is the same as it always been and will always be, and that is an industry that is constantly evolving and an industry that is never going away because we are going to eat.

As much as the industry changes with new trends and with new twists on old favorites; the tried in true staples such as the sandwich, the cheeseburger, the pizza are never ever going away. All of these differences gives potential owners ample options to truly find their best fit.

The challenges again are always going to be the same. Staffing is a constant challenge. No amount of automation is going to take away the fact that you are still going to need people in the store? This challenge can also be an opportunity.

The savvy owner is going to build a culture where employees enjoy coming to work. Sometimes a person’s first job is in the food industry. An owner that can embrace this can build a great pipeline and also build future leaders.

The other opportunity is going to be around the constantly changing use of technology. Are we tapping into things like AI or chat GPT or any app that is going to help make the customer experience better in addition to helping new customers to your store

Marcia Mead, president, M Squared Franchise Consulting

Overall, while the restaurant franchising industry faces several challenges, there are generous opportunities for growth and innovation. Success will depend on the ability to adapt to changing conditions, leverage technology, and meet evolving consumer expectations.

This isn’t exactly a hot take, but inflation and increased costs for ingredients, labor, and logistics are squeezing profit margins. Additionally, real estate availability and costs are challenging large footprint restaurant franchises.

It’s not all doom and gloom for restaurant franchises. Opportunities include expansion into emerging and under-served markets, menu innovation including plant-based options and local specialties, and enhancing brand loyalty programs with personalized marketing.

Jonathan Hill, cofounder, Morrow Hill

It’s a whirlwind of challenges and opportunities right now. We’re still dealing with a tight labor market, supply chain disruptions, and rising food costs. Market availability is at an all-time low, just under 5 percent, while demand is hitting a record high. In other words, it’s an extremely competitive market.

Rent rates have surged by 2.6 percent over the past year, reaching a record average of $25 per square foot. With these factors at play, landlords hold significant power in negotiations, especially for smaller spaces under 2,500 square feet, which are in high demand.

Interestingly, much of this leasing activity is driven by growth from quick-service restaurants and personal services. Record spending on dining out has pushed food and beverage retailers to account for nearly 20 percent of all leasing activity—again, another record high.

In this highly competitive market, it’s crucial for franchises to be well-represented when negotiating their leases. The stakes are higher, and securing prime locations requires extra time and patience to navigate unexpected hurdles. Franchises that can adapt and stay ahead in these unprecedented market conditions are the ones that will thrive.