Based on your experience, where do you see the future of the restaurant franchise industry headed? Are there any emerging trends you're excited about?

By: Eddy Goldberg
Published: July 22nd, 2024

So, what’s ahead for the franchised restaurant business? We asked five multi-unit restaurant operators for their thoughts. They covered a lot of ground: the upcoming presidential election, consolidation, private equity, automation and AI, finding good staff, closing low-performing units, customized and personalized customer experiences, and more.

Next issue we dig into work/life balance. (Or should it be called life/work balance?) Owning multiple units can be demanding. How do you ensure a balance between work and personal life, and what practices help you manage stress? If you’re a multi-unit restaurant franchisee interested in sharing your thoughts on this subject, email us. Let’s talk!

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AZIZ HASHIM

Company: CEO, NRD Capital Management, LLC

Brands: Indoor Active Brands, Experiential Brands

Years in Franchising: 30

In 1996, Hashim founded NRD Holdings, a franchise development and holding company. Starting with a single QSR in Atlanta, the company grew into one of the largest restaurant franchisee companies in the U.S. Its brands included Popeyes, KFC, Taco Bell, and Domino’s. In 2014, the same year he founded NRD Capital, a franchise-focused PE firm, he served as Chair of the Multi-Unit Franchising Conference. And in 2016–2017 he was Chair of the IFA. His current initiative is called SocialBites.

The entire premise of creating our new model, SocialBites, is a response to where I see franchising going—particularly restaurants, but certainly not limited to them.

Franchising is entering a new era after decades of exponential growth. Franchise growth has often outpaced the natural growth of the U.S. population, fueled by almost two decades of near-zero interest rates and low inflation, further boosted by pandemic-related government subsidies. Franchise unit economics, therefore, were skewed by these abnormal conditions, resulting in lower-than-acceptable adjusted returns on investment for most franchisees. Now that interest rates, input costs, and consumer spending have normalized, those abnormalities—and the decisions caused by them—have been exposed.

I believe that we will likely enter a phase of consolidation that could include a retraction in unit counts to normalize for over-growth and the realities of input costs. This “reset” is normal and necessary and will result in new models in franchising that are more focused on unit economics and delivering better experiences for a more demanding consumer.

What we have chosen to do in our Experiential Brands platform is to try and capitalize on the reset by adaptively reusing excess space—but not by returning to the same business model (i.e., simply replacing one brand with another). Rather, we have opted to be more creative with spaces to give consumers flexibility and choice when they take the time to visit a physical location. We essentially created an entirely new restaurant category, the “Foodhub,” where multiple brands, community experiences (like entertainment, social activities, etc.), and other programming gives consumers more reasons and more value for their valuable time and money. In turn, this highly de-risks the franchisee’s investment as now there are multiple revenue streams in one physical location instead of just one.

We did a similar exercise in our pickleball franchise model, The Pickle Pad. While most competitors focus only on renting pickleball courts, we created a social space where people can gather to eat, play, socialize, and participate in multiple activities. It’s not enough to just offer a few pickleball courts; that was the “old” model, which carried higher risk. We have thought about the consumer experience, the franchisee’s cost to open, and increasing the chances of success for a particular location by increasing the number of revenue streams.

On the franchise development fronts, AI and other technological advancements will disrupt more and more jobs, creating the need for the next generation of franchise business opportunities—but the franchisees of the future will also be more discerning as they will have unprecedented access to tools to assess winning business models from less compelling ones. This is a positive trend for great franchise brands that have solid data and Item 19 information to back up their offerings. So, again, a reset in the way things will advance.

You can see that there is much to be excited about, but only if one is prepared to reset. “Business as usual” simply just won’t be that usual in the future. Franchising will always be a wonderful opportunity to achieve financial independence.

ZANE TANKEL

Company: Chair/CEO, Apple-Metro

Brands: Applebee’s (the brand’s largest restaurant)

Years in franchising: 30

Tankel, a longtime franchisee of Applebee’s, operated about 40 stores in the Metro New York market before starting to sell them off. This past January, he sold 21 of his remaining 23 Applebee’s to Doherty Enterprises. He still owns the 3-story Times Square location, the world’s largest Applebee’s, and another in the Staten Island Mall.

The future of franchised restaurants looks good, but it will be more segmented. The industry is moving more and more toward Asian flavors and concepts like ramen, Korean or Asian barbecue, and boba tea shops. Mediterranean concepts such as Cava, now up to several hundred units, also are growing.

We’re also seeing legacy brands trying to be everything to everybody—Chili’s, Olive Garden, Red Lobster, for example. Even IHOP is selling burgers. However, I see legacy brands trying to be everything being chopped away by the up-and-coming Asian and Mediterranean concepts. Jinya Ramen Bar, a high flyer from California, is growing by leaps and bounds.

The demographics of who’s going out to eat are shifting. Younger people today are more experimental and sophisticated and interested in trying new things. They’re also more demanding than customers have been in the past. One tailwind for franchised restaurants is that so much of the U.S. population doesn’t know how to cook anymore.

Looking ahead, I think the franchise restaurant industry must get more creative, especially in these three areas:

Real estate/location. With rents going through the roof, we need to think more out of the box and make better usage of our rental assets or mortgage payments. About 15 years ago, we started to serve breakfast every morning at our Applebee’s restaurants. There are large, empty locations available for franchisees to add more dayparts.
Menu engineering. There’s no need to have 10,000 items on your menu. To survive, restaurant brands must very carefully cull their product mix. Applebee’s has a “barbell” approach: steaks on the high end and chicken fingers on the low end. Culling extensive menus also will reduce spoilage and inventory.
Scarcity of good staff. A good staff is essential. A good server can sell a ton of product. A bad server not only doesn’t sell, their customers don’t come back. If you leave with a good experience, you tell your grandchildren about it. Much more attention must be paid to attracting and retaining good people. People assume 100% turnover in this business. We’ve had none at the management level. Servers will change, of course. We try to help them find careers, not just see us as a bus stop. We put the time in on the front end interviewing and training, with a probationary period, then offer additional benefits over time. Most importantly, we treat our staff with respect, which is no-cost item.

JOHN METZ

Company: CEO & Founder, RREMC Restaurants

Units: 62 Denny’s, 5 Hurricane Grill & Wings, 2 Wahoo’s Fish Taco

Years in franchising: 22

John Metz is Past Chair of the Multi-Unit Franchising Conference and former franchisor of Hurricane Grill & Wings, which he sold to FAT Brands in 2018.

Size counts. One primary trend is toward larger, well-capitalized franchises—entities instead of individuals. I think the days of a mom-and-pop buying one or two stores are over. I’m talking about newer stores here, with fewer going to the smaller franchisees. A lot of franchisors today are reluctant when it comes to smaller franchisees. It’s difficult to get approved by any of the larger brands as a onesie-twosie, and getting harder and harder.
Shutting underperforming units. You can no longer keep a low-performing unit open. You really need to trim your stable, cull the herd. You can’t always turn a low-performing unit around. I see more underperforming units closing. Some franchisors will permit it, others not. It doesn’t pay to operate a losing unit. We’re analyzing all our Denny’s units and will probably close two to four.
Unions and minimum wage. I’m very concerned with two things: the unionization of restaurants and increases in the minimum wage. Why the politicians want to attack entry-level positions in the restaurant space is beyond me. In many states we’re moving to $15 an hour, and in some $20. This will drive prices up to offset the wages. Pay $15 and burgers will cost $15. This also will automate jobs and reduce the number of humans on your payroll. I see these trends continuing, and they’re going to have a huge, huge impact on franchised restaurants. I’ve recommended to Denny’s that they test kiosks in some of their restaurants. It will help with keeping customer costs down because you don’t have to tip your server.
Consumers cutting back. Consumers are out of gas; they’re broke. Everybody’s doing value meals to keep them coming in. It’s a race to the bottom, with brands employing a “barbell” strategy, hoping to upsell customers attracted by the lower-priced menu items.
Legislation. Most people do not understand restaurant economics. What politicians have worked in a restaurant? Beyond the minimum wage hikes for hourly employees, the next big problem in the restaurant industry is salary increases for exempt employees. On July 1, it rose from $684 a week ($35,568/year) to $884 a week ($43,888/year). And on January 1, 2025, it goes up again, to $1,128 a week ($58,656/year).
November election. The presidential election, just a few months away, is ramping up uncertainty for all businesses. If Democrats win, there will be more unionization, more wage and hour regulations—not only for restaurants, but the whole franchise model may be under attack. If Republicans win, they will do their best to mitigate what Biden has done in the past four years.
Remodeling requirements. Then there’s always Capex required to renovate every 5 to 8 years (new roof, new equipment, etc.).

So why stay in it? I like it. I like working with people. I like the challenges of restaurants having so many moving parts.

TAMRA KENNEDY

Company: Twin Cities T.J.’s

Brands: 6 Taco John’s

Years in franchising: 40

Kennedy is an IFA Foundation Board Trustee, an IFA Board Member, and Past Chair of the IFA’s Franchisee Forum.

I see the value of creating and sustaining deeper loyalty with our guests as part of the future in franchising. With so many choices in every marketplace, the ability to connect on a personal level with and through transactions will be ever more important. I see an evolution from a “loyalty app” to a more customized, experience-driven conversation with guests that will bind them to us as their best/only choice!

I continue to see a trend of simplified menu offerings that, as an operator, can mean easier training processes, concise marketing messages, and an elevation of proteins that can be mixed and matched with sauces and seasonings quite simply.

NATE MALLOY & RORY KELLY

Company: Nate Malloy, CEO and Rory Kelly, Owner, Salads & Smoothies LLC

Brands: Crisp & Green, previously a large multi-unit owner with Verizon Wireless

Years in franchising: 30+

We see the future of the restaurant franchise industry evolving in several new directions. One of the most prominent trends is the increasing consumer demand for health-centric dining options. People are becoming more conscious about their health and well-being, seeking nutritious, made-from-scratch and minimally processed ingredients. This shift is evident in the growing popularity of restaurants like Crisp & Green that prioritize fresh, high-quality ingredients and sustainable practices.

Personalized and diverse menu offerings are gaining traction. Consumers are looking for customized meal options that cater to their specific dietary needs, whether they are vegan, gluten-free, or keto. Franchises that get ahead of this trend will likely see heightened customer loyalty and satisfaction.

We’re also seeing restaurants offer more than just food; they serve as hubs for community engagement. Apart from providing healthy dining options, we host complimentary fitness and wellness events to forge direct connections with our local communities, fostering brand loyalty and expanding our marketing outreach.

We are strong believers that the future of the restaurant franchise industry lies in embracing health-focused menus, convenience and customization, and a commitment to community.

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FRANCHISEE BYTES

What is your favorite movie?

“The Pursuit of Happyness.” It is a true story illustrating that no matter your circumstances and obstacles, you can overcome and triumph.
—Stephanie Moseley, President, Pisa Pie Enterprises, 6 Marco’s Pizza

“Training Day.” Denzel Washington is my favorite actor.
—Nadeem Saleem Bajwa, CEO, Bajco Group, 207 Papa John’s

“Rocky II.”
—Sam Askar, COO, Askar Brands, 75 Dunkin’, 42 Church’s Chicken; 1 Papa Romano’s, 1 Blackjack Pizza. Askar Brands is also the franchisor of Papa Romano’s, Blackjack Pizza, Papa’s Pizza To Go, and Breadeaux Pizza

“Good Will Hunting.”
—Karl Malchow, Owner, Renegade Pizza LLC, 5 Toppers Pizza

“Interstellar.”
—Harsh Ghai, CEO, Ghai Management Services, 140 Burger King, 36 Taco Bell, 28 Popeyes

“Malcolm X.”
—Phillip Scotton, COO, Primo Partners, 23 Ben & Jerry’s, 2 Starbucks

“National Lampoon’s Christmas Vacation.”
—Bill Mathis, Multi-Unit Franchisee, 3 Subway, 1 Caribou with 4 more in construction

“The Lincoln Lawyer.”
—Alex Carney, Vice President/Franchisee, TR Hospitality Group, 10 Freddy’s Frozen Custard & Steakburgers (11 in August), 7 High Plains Brew (7 Brew Drive Thru Coffee)

“Toy Story.” I love nurturing the inner child filled with openness, joy, and curiosity.
—Steven Leibsohn, Owner, 35 Wetzel’s Pretzels, 2 food trucks, 1 Twisted by Wetzel’s

“Rounders” and “Bad Boys.”
—Bill Aseere, CEO, Space Cowboys Restaurant Group, 17 Donatos Pizza, 3 Guthrie’s Chicken, 2 Whit’s Frozen Custard

“Saving Private Ryan.”
—Pathik Patel, President, VAAP Management, 16 Dunkin’, 1 Buffalo Wild Wings GO, 1 Curry Up Now

“Gladiator” with “The Count of Monte Cristo” a close second.
—Milo Leakehe, Managing Partner, Imbue Capital, 3 Crumbl Cookies, 1 PayMore Stores, 1 Tropical Smoothie Cafe, 1 Rolling Suds, 1 Solve Pest Pros