Three Food Franchises That Thrive in Small Markets
Live in a small town with less than 30,000 people? These food franchises might be your best bet to research
Although it is true that much of America’s population growth has gravitated towards larger and more urban cities, a staggering number of communities have a population of less than 30,000.
The U.S. Census had this to say on a recent blog: There were 19,509 incorporated places across the nation in 2014, the majority of which were small. A total of 85 percent (16,486) had populations of less than 10,000 and an additional 12 percent (2,274) had a population size between 10,000 and 50,000.
Most franchise systems - and particularly food franchises - focus on having a presence in the top 350 markets in the U.S. The higher the population is, the more potential customers a franchisee will have and at least in theory, the lower the risk. Conventional wisdom in franchising is to avoid markets that look small on paper. That’s frustrating if you live in a small market, know it well and see an obvious opportunity to bring something special to your trade area. Many franchise brands won’t even start a conversation with you about your market because it falls outside what they target.
In the work we’ve done with franchise brands of all types, we are always surprised to learn that there are some outlier franchise opportunities that go against this trend and have managed to carve out surprisingly successful businesses in markets others ignore. Small cities - of which there are thousands in the U.S. - have the potential to be highly lucrative opportunities for the owner who can see the need for the right franchised brand.
Small markets are often underserved. When a local entrepreneur opens the right type of business, it can, in many cases, perform far better than the same franchise does in a large market. The reasons are simple: small markets often have few services available and when one opens up it draws customers from a much larger trade area than it normally would. Because there are few other options, customers tend to frequent at a much higher rate and are much more supportive of the business and the owner. Land is less expensive, labor is often plentiful and in general, customers are thrilled to have the business in their community and local government can be very accommodating and supportive.
For an entrepreneur who wants to improve their community and wants to play a prolific role locally, opening a food franchise can be a very attractive option. We’ve highlighted three reputable and well established franchise brands that have a history of thriving in these small markets. Each of these brands has top performers in their systems who operate in small markets and is worthy of research:
What it is: SONIC is not only the nation’s largest drive-in franchise with over 3,500 locations; it is one of the most prolific brands advertising on TV. With a staggering $180 million a year in spending, its famous two-guys campaign has built brand awareness in almost every corner of the country. In an era of personal customization and customer control over the buying process, SONIC’s drive-in model with carhop service gives the franchise a big advantage over other QSR and fast casual food franchises; regular customers have a deeper and more personal relationship with the brand than they would at another fast food location. “If 25 customers come to a traditional fast food outlet, they all have to stand in line and wait to order at the counter,” said CEO Clifford Hudson. “At a drive-in, you can roll up in your comfortable car - which is a lot like your living room - and order when you are ready without standing in line. A carhop delivers your food and it doesn’t matter if you are the only customer or one of 25 ordering at the same time. You’ll have a great and consistent experience without a line.”
SONIC has five maximized day-parts to its business: breakfast, lunch, afternoon, dinner and evening. These day-parts give a franchisee solid revenue options for a day that spans 18 hours. With a diverse menu that ranges from coneys to burgers and tots and covers a large variety of ice cream and slush drinks, SONIC offers something for just about every type of customer.
Why it works in a small market: The social nature of the drive-in itself makes it a good fit for a small market. Drop by a SONIC today and you’ll see people hanging around, enjoying each other’s company and the food at the same time. You might think of SONIC as a burger franchise, but 40% of its sales are ice cream or frozen drinks and desserts and most of it is in the afternoon, when kids get out of school. SONIC is also one of the largest sellers of hot dogs with burgers only making up 16% of its sales. Thanks to its national advertising campaign, there is pent-up demand for SONIC in new markets and customers know a lot about the menu items long before one opens up. A diverse menu gives operators a chance to bring a wide variety of food options to customers hungry for something different.
The drive-in model is also less expensive to build than a typical restaurant with just a small enclosed space, making it possible to get a faster return on investment.
“We have some locations that have been open for more than 30 years in markets with as few as 1,000 people,” said Drew Ritger, SONIC’s Senior VP of Development. “Our first location over 60 years ago was in small Shawnee, Oklahoma, and although we work in all sizes of markets, we still find that franchisees get nice business returns in small markets today.”
Why you should research this brand: Under the leadership of CEO Clifford Hudson, SONIC has moved from being a quiet franchise opportunity you rarely heard about to one of the best bets in the QSR space. He succeeded in growing it from a regional brand to a true national franchise. Hudson built an impressive team and has raised same store sales every year for the past five years. Margins are up, franchisee validation is among the best in franchising, brand awareness is at an all time high and SONIC is poised to double the number of units. Despite 3,500 established locations, there are hundreds of small market opportunities available for the right entrepreneur throughout the country.
Company franchise information: http://www.franchise.org/sonic-drive-in-franchise
Captain D’s Seafood
“The anticipation was building so that when opening week finally got here, it was exciting. The response was so great, in fact, we set the all-time company record for first-week sales.”
- Captain D’s Franchisees Keith and Chris McBrayer, West Point, MS, a town with 11,200 people
What it is: Captain D’s is a unique food concept that works in a wide variety of markets with a simple core value proposition for the owner. Here’s how Michael Arrowsmith, Captain D’s Chief Development Officer explains it: “If you want to open a fast casual restaurant with a simple operation to run that doesn’t compete with burgers, pizza and chicken, Captain D’s is a smart franchise to buy.”
Rather than hit the mass market head on like many other brands, Captain D’s specializes in something that is often underserved in most markets: seafood. If you see a doctor on a regular basis, you’re likely to hear the “you should eat more fish” speech. Seafood is increasingly popular because of this and unfortunately, hard to find in many markets. Captain D’s offers a fast-casual dining experience with real plates and silverware that offers high quality food at very affordable prices.
Why it works in a small market: Jim McClure, a successful franchisee who owns several Captain D’s in small markets sums it up this way: “Our success in small markets comes from the fact that we live in one and are very familiar with small town dynamics. Small towns are sometimes lacking the amenities that come with living in a more urban area, such as more variety and choice in dining options.”
Just because a community is small, doesn’t mean there isn’t a demand for something that isn’t burgers, pizza or chicken, and on this front, Captain D’s delivers. When brothers Keith and Chris McBrayer opened the doors of their West Point, Mississippi-based Captain D’s franchise, they were not sure what to expect.
The message “Coming Soon” on a billboard touting their new Captain D’s franchise was enough to generate lots of immediate local interest.
“The anticipation was building so that when opening week finally got here, it was exciting,” says Keith. The response was so great, in fact, that their restaurant set the all-time company record for first-week sales and the local TV news commented that the opening “was bigger than the Walmart opening.” The McBrayers signed on for a three-unit agreement and now plan to open five, capitalizing on the demand for something unique and more health-conscious in several other small Mississippi communities.
Why you should research this brand: If you haven’t visited a Captain D’s in awhile, you should. Captain D’s benefits from the increasing popularity of fish and seafood. Americans are moving away from burgers and fries and heading toward a fast-casual dining experience that feels like a restaurant and is good for them. As CEO Philip Greifeld puts it, “We are where chicken was 20 years ago.” Seafood is growing in popularity and that growth should continue for some time.
Captain D’s has had over five years of same store sales increases and its grilled menu went from nonexistent to almost 20% of its sales and growing in recent years. Captain D’s has a high-performance store design that customers respond to well to. “The only reason people don’t eat seafood more often is simply because most markets are underserved,” said Arrowsmith. “We’re poised to take advantage of this as people seek dining alternatives.”
Company franchise information: http://www.franchise.org/captain-ds-llc-franchise
“We opened with a very strong month and a year later, we are still growing and we are a top-performing franchise. The new evolution model has exceeded my expectations for what a Huddle House would do in a small market.”
- Tom Knott, Huddle House Franchise Owner, De Soto, Missouri, a town with 6,400 people. Knott’s location was one of the top performers in the Huddle House system last year.
What it is: Huddle House is a 50-year-old, 24-hours-a-day family restaurant that focuses on breakfast and other meals served anytime of day. From traditional eggs and waffles to burgers, steaks and meat-and-three dishes, this franchise offers customers affordable meals served with Southern hospitality. Huddle House prides itself on some of the highest customer frequency rates in the industry: 30% of the customers generate over 65% of the income and these people visit more than five times a month. Drop into a Huddle House and you’ll see the same faces most days. It isn’t unusual for customers to eat breakfast five or six times a week, and some customers visit daily.
CEO Michael Abt explains the attraction to Huddle House this way: “A Huddle House doesn’t feel like a national chain; it feels more local. Most of our owners are involved daily in the store and live nearby. They live and work with the customers and know them. For a customer that visits on a regular basis, we are a comfortable and familiar place to dine. Our brand positioning is to serve homestyle, comfort foods to everyday people at affordable prices, and we excel at that.”
Why it works in a small market: Huddle House serves the type of popular, traditional fare that almost any customer loves. Most small markets are far underserved and have few options and hardly any have If they do have options, they rarely have one open 24 hours a day and seven days a week, which can be a big advantage if you live in a community where the sidewalk rolls up at night. The core Huddle House customer is blue collar and middle to lower income. For many, a Huddle House is the only sit down, table service food option they have and they can get a meal at the same price point as fast food but prepared fresh.
A Huddle House in a small community quickly becomes the center of attention - the place you can go after a high school football game, after church, for breakfast before work or drop in after the night shift. The attraction is a lot more than just great food at affordable prices - it is a place customers feel connected to their community.
Why you should research this brand: Huddle House has had several years of positive growth, beginning with its Evolution model launched four years ago. Under the leadership of CEO Michael Abt, the fifty year old brand has expanded into new parts of the country and focused on improving both same store sales and increasing profit margins for its franchise owners.
It has lowered its investment levels and offers both free-standing and inline buildouts, making it possible to open a Huddle House for a much lower amount of startup capital. Breakfast is an attractive segment to offer thanks to lower cost of goods; breakfast food costs are often 4-5% less expensive than other dayparts and over 60% of Huddle House’s sales are breakfast related. Lower costs equals higher margins for the owner.
Company franchise information: http://www.franchise.org/huddle-house-inc-franchise
Live in a small market, know your area well and want to bring a valuable service to your community? These three brands have a proven track record of performing well in small markets and are a great place to start your research.
About Thomas Scott
As CEO of Brand Journalists, Thomas has helped over 50 franchise brands create breakthroughs in franchise development. His clients include some of the fastest growing brands in the franchise industry – Menchie’s, Marco’s, Chem-Dry and many others. He has been a regular speaker and roundtable facilitator at IFA conferences and is a prolific author, writing highly read articles on franchise lead generation and franchise sales topics. He is the co-author of the Franchise Sales Tipping Point book, was listed as one of the top 50 content marketers by Kapost and his brand journalism lead generation tactics have been featured in Entrepreneur.com.