By Khadija Cochinwala, FRANdata

 

According to FRANdata, F&B franchises constitute 36 percent of the total US franchised establishments with the number of units across all its categories growing to more than 217,200 units in 2022, demonstrating a remarkable resilience to the pandemic and the current economic climate. According to the 2023 Franchising Economic Outlook, the QSRs and full-service restaurant categories themselves account for over 67 percent of all franchise employment with the QSRs also anticipated to witness the strongest industry growth (2.5 percent) in 2023 compared to all other sectors in franchising. This article examines the evolution of the F&B category over the last five years and its top future trends.

The pandemic in 2020 transformed the ways in which all industries operate, especially the F&B franchises. Food, as essential as it is to human existence, has thus far always been a stable recessionresistant business investment. However, the ups and downs in the last five years — COVID-19 lockdowns, market dynamics, rising inflation, technological innovations, ever-evolving consumer preferences in health, wellness & sustainability along with newer culinary trends — forced the industry’s mature and emerging players to adapt and re-structure their business models.

Following the pandemic and throughout 2022, franchises were particularly challenged by increasing supply chain constraints, labor-related business costs, employee hiring & retention, expensive real estate and rising borrowing rates. The IFA/ FRANdata 2023 Franchisee Inflation Survey found that three out of the top five industries experiencing the greatest impact from inflation were from the food category (baked goods: 72 percent, QSRs: 65 percent and restaurants: 53 percent). Eighty-one percent of franchises from the baked goods and 73 percent from the QSR sectors observed lower business earnings while franchises from baked goods (83 percent), restaurants (73 percent), QSRs (72 percent) and frozen desserts (67 percent) were negatively impacted from COGS related expenses. Ninety-one percent of businesses in baked goods and QSR and 87 percent from restaurants suffered from increased labor expenses. Franchisees have struggled to balance these requirements with market demands, resorting to traditional and non-traditional cost-cutting solutions like in-app loyalty programs, reducing portion sizes and corresponding pricing adjustments. Two out of the top five industries that have substantially raised prices are frozen desserts (100 percent) and baked goods (98 percent) according to the survey results.

Though the markets are recouping from the pandemic, with the sector’s AUV growing at an impressive 6.6 percent and reaching a four year high of $1,347,000 in 2022, its ripple effects are still widely felt in shaping future industry trends.

1. Technology and Digitization Across All Operations

AI and technology are the future, and the industry has acknowledged this through rapid adoption of innovative features resulting in seamless day to day operations and improved productivity. Whether it is improved cold storage facilities and smart factories through the Industrial Internet of Things (IIoT), the latest and upgraded versions of restaurant management software that allow for improved point of sale (POS), payroll, reservations and accounting systems (ex: Marco’s Pizza’s 100 percent cloud-based MOMS software launched in 2023) or the addition of advanced restaurant robotics such as Miso Robotics’ Flippy, an AI-powered cooking assistant that automates hamburger flipping and fryer operation and which has already been installed in a few restaurants; high-tech features are driving the food and beverage industry forward.

Beyond back-office operations, digitization has improved customer convenience through innovations that support minimal points of interaction, such as 24/7 self-service kiosks, QR-code-enabled menus, online and mobile application-enhanced services and cashless and PIN-less contact card payments via digital wallets. According to the Boston Consulting Group, digital ordering now accounts for 28 percent of all orders, up from the pre-pandemic 10 percent. The evolution from behind-the-counter ordering to drive-throughs to self-service kiosks and now online pre-order and pick-up options has allowed restaurants to become more flexible in their services and address labor shortages. Enhanced innovation will continue to increase in all phases of restaurant operations, controlling costs and prices for both franchisees and consumers.

2. Hybrid Dining and “Eatertainment”

The lockdowns and quarantines forced the disappearance of the dining hall setup in full-service restaurants and the adoption of ghost kitchens, curbside pick-ups, drive-throughs and direct to consumer (DTC) deliveries through third party vendors like DoorDash and Uber Eats. However, even as the convenience of online food-delivery and DTC services remain a permanent fixture in the present-day consumer dining landscape, there is a renewed demand for on-premise dining experiences.

The National Restaurant Association’s 2023 State of the Restaurant Industry Report indicates that 84 percent of consumers prefer going out to eat with friends and family over cooking and cleaning up at home. Similarly, in the aftermath of COVID-19, restaurants have become a community meeting space catering to pent-up consumer demand. This is illustrated by the rise in “eatertainment,” or food being served alongside a form of entertainment. Ghost kitchens that offer multi-restaurant selections are also expected to grow exponentially in the coming years. The industry seems to be poised to create a balance between on and off-premises dining resulting in cohesive hybrid restaurant operations with the goal of servicing all consumers – offline or in-person – with a win-win for everyone.

3. Evolving Consumer Preferences

COVID-19 has made health and wellness a priority for many consumers. Food trends based on nutritional benefits, dietary preferences and rising concern for the environment and sustainability are directly influencing menu and product offerings. According to the food and beverage analytics company, Spoonshot, preference for all alternative foods, including alt-dairy and alt-meat, increased 262 percent between January 2016 and April 2022. As seen through data collected from Statista.com, the global plant-based food market is expected to reach $77.8 billion in 2025. Veganism inspired ‘flexitarianism’ is in vogue with 90 percent of meat-free food consumers actually being non-vegans and non-vegetarians, according to a study by the NPD group. Cultivated meat, which is grown from cells without any animal slaughter is another exciting development to watch out for in 2023 in lieu of this trend. Capitalizing on this growing market, major franchises like McDonald’s, Yum! Brands (KFC, Pizza Hut and Taco Bell), Carl’s Jr. and Panda Express have partnered with Beyond Meat, a sustainability focused company, for their plant-based protein menu items.

According to a 2022 survey of 7,000 consumers by Censuswide and Deliverect, 43 percent were willing to pay more at restaurants that have visible sustainability practices, and 56 percent would choose a restaurant that uses eco-friendly packaging. Franchisors are paying heed and prioritizing green goals such as supporting sustainable and regenerative food sourcing (Chipotle), 100 percent deforestation-free supply chains (McDonald’s), recycled packaging materials (Domino’s Pizza) and 100 percent sustainably sourced packaging (Wendy’s). The F&B industry’s initiative in reducing its carbon footprint is a commendable example of a strategic and ethical way of earning consumer trust and dollars.

 

Khadija Cochinwala is a research analyst at FRANdata. She is part of a team of analysts who measure, track, and analyze franchisor performance. Khadija is committed to producing quality franchise insights that enable strategic decision making and propelling business growth. For more information about IFA supplier member FRANdata, please visit franchise.org/suppliers/frandata.

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