Riding the Wave of a Changing Franchise Landscape

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A year of steady economic growth has seen Canadians spend a few more dollars on commercial foodservice. In fact, Restaurants Canada’s recent Foodservice Industry Forecast: 2017 – 2021, finds Canada’s economy grew by approximately 2.6 per cent in 2017 — driving commercial foodservice sales up by 4.9 per cent. Menu prices are expected to grow by 3.3 per cent in 2018.

Robert Carter, executive director, Foodservice, with Toronto-based NPD Group, says going into 2018, fast-casual and quick-service restaurants will experience significant changes. “What we have seen [2017] — and the core message we are taking away — is consolidation, with companies such as Cara and MTY growing their share of the market by going out and acquiring other brands,” Carter says.

Both Cara Operations and MTY Food Group have been busy on the acquisitions front. Cara Operations paid $93 million to acquire Original Joe’s, State and Main and the Elephant & Castle restaurant-bar chains in 2016 and, this year, took over the Pickle Barrel Group of Restaurants. In June, MTY Food Group completed its acquisition of Dagwoods Sandwiches and Salads and purchased 80 per cent of the assets of Houston Avenue Bar & Grill and Industria Pizzeria + Bar. The QSR juggernaut closed out 2017 by announcing it would further expand its portfolio with the purchase of Imvescor Restaurant Group for $248 million.

Carter expects the acquisition trend to continue, since starting a new franchise operation from scratch is an expensive proposition. And, with the Canadian market having a large number of franchise operations already competing for share of wallet, franchises have to offer something unique in order to grow.

INNOVATION IS THE NAME OF THE GAME
A continuing trend into 2018 will be what Carter calls innovative franchises — ones that offer a unique spin on a traditional product. “We’re seeing some interesting and innovative franchise concepts coming out in the fast-casual segment of the market,” Carter says. “Players such as Via Cibo, The Burger’s Priest and even Sweet Jesus have interesting franchise concepts.”

Via Cibo, for example, positions itself as offering diners Piadina (an Italian flatbread), pastas, salads and pizzas based on Italian recipes and using local ingredients. The Burger’s Priest positions itself as using fresh ingredients, simple toppings and making its burgers from freshly ground beef, while Sweet Jesus has taken traditional soft-serve ice cream and fashioned it into an offering that is both a snack and a piece of outrageous post-modern, Instagramable art.

Jeff Young, chief development officer of Monarch & Misfits — the parent company of Sweet Jesus — says the company plans to open 20 to 25 new units over the next 12 to 18 months. Geoff Wilson, principal with Toronto-based fsStrategy Inc. says with the franchise market being so competitive, it’s likely Canada will see more innovative concepts coming onto the scene; and more established players in the Canadian franchise market looking to imitate the success of these kinds of brands.

“To succeed in this market, you need to offer something different and that’s why you’re starting to see franchises and independents trying to find a niche for themselves — so they can stand out in the marketplace,” Wilson says. “That can include the menu, atmosphere, service or pricing. It all comes down to being different, understanding what your target market wants and providing it to them. You want to give them the best experience you can — making sure once you get that customer, you make them want to come back.”

REINVIGORATION OF TRADITIONAL BRANDS
As Canadians seek unique restaurant experiences, established franchise players have begun to up their game through strategies such as adjusting menus to include healthier options. Subway Canada, for example, added ‘better-for-you’ options and condiments for its sandwiches along with gluten-free bread. More franchises are following the same path, with many introducing cage-free eggs, antibiotic-free meats, lower-calorie menus and adding salads to the menu mix.

“The traditional players are starting to move beyond the more old-fashioned idea of franchising,” suggests Carter. “McDonald’s McCafé is a good example of this and it has helped reinvigorate the brand. We’re going to see more [restaurants] with options beyond core-menu offerings.”

Wilson says franchise operations are trying to attract an increased number of millennials. While newer brands can attract this cohort by simply being novel, traditional player have to change their approach if they hope to compete. He points to A&W — a stalwart of the franchise landscape in Canada — which has reinvigorated its brand to appeal to the millennial market. “When I was growing up, A&W was the place my mom and dad took me to and I remember it being an old-fashioned drive-in concept,” Wilson says. “If you look at the evolution of the brand, you see how it has changed, first trying to appeal to my generation with our memories of going to A&W for a burger and root beer, and changing again to appeal to today’s [millennial] generation that wants more customizable food experiences and a more appealing atmosphere.”

Alan Howie, vice-president of Operations and Development for Boston Pizza International says staying relevant in today’s franchise market is critical for a brand’s ongoing success. “If you look at how demographics are changing, the millennials are now becoming parents and this is a generation that has grown up with technology and faster pace of life,” Howie says. “This generation is looking for something different when it comes to a restaurant experience.”

This influenced Boston Pizza’s new urban look and features showcased in its redesigned location at Front and John streets in Toronto. The 9,400 sq.-ft. — on two floors — space features 350 seats and design elements such as a bar on each floor, 80-inch flat-screen TVs and a customizable sound system. A second, similarly updated urban-design location was opened in Toronto at Yonge and Gerrard streets.

This new look can best be described as combining the best of family dining and a sports bar — a mix of intimacy and community. “This new urban design is modern and the goal was to have something that has an urban vibe with lots of guest-friendly technologies designed t elevate the experience,” Howie says. “As a country, we’re becoming much more urban. It used to be that only single people lived downtown, but now you have families living downtown and others selling their homes in the suburbs, retiring and moving downtown.” Howie says Boston Pizza is looking to take this new urban design concept to downtown Edmonton, Ottawa, Montreal and Vancouver.

Along with its new urban focus, the company is looking at opportunities in small towns. “There are towns where we can become not just the family dining and sports-bar restaurant, but also the special-occasion restaurant.”

He says to do this, Boston Pizza needed to move away from taking a cookie-cutter approach to franchise locations. “We don’t want to just build prototypical restaurants across Canada,” Howie says. “We realize Canada is a big country, with more than 33 million people with lots of different towns with different needs. A town in Northern Quebec is different from a small town in British Columbia.”

Being cognizant of how Canada operates — from urban centres to small towns — is key to a franchise’s success, according to Greg Delks, vice-president of Global and Non-traditional Development with Florida-based Firehouse Subs. “When we first came to Canada, we had to realize it’s not like the U.S.,” says Delks. “We saw an opportunity to bring a quality product that’s much more than a commodity to Canada. It is not stuffing your sandwich into a bag and going out the door.”

To be successful in Canada, Delks says Firehouse Subs also looks to bringing people onboard that are more than simply restaurateurs — ones that focus on customer service. Running a successful franchise operation in Canada means meeting the needs of customers and how they want to interact with the brand. That means embracing technology. According to NPD Group, the trend that will shake up the franchise landscape going forward is technology that provides ordering and delivery convenience to customers. This includes everything from mobile ordering, apps and ordering kiosks, to food-delivery services. McDonald’s recently partnered with UberEats to offer delivery service in certain Canadian cities and more franchises are moving to partner with third-party delivery services such as Skip the Dishes, UberEats and Foodora.

“Third-party delivery services are impacting everyone from fast-casual to quick-service,” Delks says. “Today’s consumer wants their food when they want it and where they want it and you need to be adaptable, so we partner with various third-party delivery services because if you’re not with UberEats, for example, you are not even in the decision set for people.”

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