People often want to know what are the hottest franchises. This is a difficult question to answer. If you’re not careful, it can yield misleading answers.
A “hot” franchise opportunity can mean a number of different things. Take a look at the following three things that could make a franchise concept “hot,” and maybe you’ll understand why this is not a straight-forward topic.
1. Franchise Opportunities with High New Unit Sales
In the franchise industry, things are measured in units. Franchisors are always on the hunt for new franchisees. New franchisees, or franchise owners, open new units. New units create new franchise fees, and new streams of monthly royalty income.
Fees are the lifeblood of the franchise model. If a franchisor is selling a lot of new franchise units, it could be considered to be a “hot” franchise concept. That’s one way to define it.
2. Franchise Opportunities with Locations Everywhere
Let’s say that you travel a lot for business. Let’s also say that you’ve been thinking of leaving your job and becoming a business owner, maybe even join the ranks of franchise owners.
Since you’re in the “looking for a franchise opportunity” mode, you’ve been keeping your eye on certain businesses that populate all the places you travel to. There’s this one restaurant franchise with a unique food concept that keeps popping up everywhere you go. Not only do you seem to see the brand name for these franchises everywhere, they all seem to be new.
In your eyes, this franchise seems like a “hot” one.
3. Franchises with Lots of Publicity
Some franchises get a lot of publicity. Some don’t. The reasons for publicity vary. Let’s look at three examples:
Dunkin’ Donuts tends to get a lot of publicity. One news story featured two well-known sports figures who purchased the rights to 50 Dunkin’ Donuts franchises.
Earnings announcements can be turned into publicity, too. What about a story that discussed Burger King’s profit going up 60%? (The reasons included a new menu and marketing initiatives.)
Then there was some “polarizing” publicity a few years ago surrounding Chick-fil-A and its position on same sex marriage. That may or may not be considered “good” publicity, depending on your political or social views. More to the point, it may alienate some customers who hold certain views.
Common Franchise Myths to Look Out For
One of the common franchise myths to look out for here is the idea that a franchise with high unit sales, lots of locations and lots of publicity equals a great business opportunity. Based on all the publicity that those three franchises got, one could argue that they were “hot” franchises.
Now stop and think for a minute.
When most people ask about the hottest franchises, in their minds they’re equating popularity with higher income opportunities in terms of gross sales. However, that’s not necessarily the case.
Reasons Hot Franchises Might Not be So Hot
Assuming a franchise is “hot” because it is popular or gets a lot of publicity is tricky. In fact, publicity or popularity could be a distinct negative. Consider these questions about that apparently “hot” franchise:
- Will the franchise concept you’re interested in be a short-lived fad? Here today, gone tomorrow?
- Are there too many locations nearby for you to have a chance to make money? Is the market getting saturated by that oh-so-popular restaurant?
- Can the franchisor keep up with all the new units being opened? Will all the impressive growth activity stretch the franchisor thin, and put stressors on the support and franchise system you were so impressed by?
- Is all that publicity a negative or subject to mixed opinions? Could it backfire on the franchisees and cause them to lose business?
- Is the publicity simply not very relevant to your chances for success (like the story about sports figures buying a franchise)?
Those are all important questions to ask yourself before you sign on the dotted line.
Don’t Forget your Due Diligence
Instead of looking for the “hottest franchise” of the moment, look at bigger franchise trends. Look at changing consumer tastes and habits. Look at new technologies that change how we live, and change what we expect from businesses that serve us. Look at changing demographics, such as aging of the population and how immigration is changing things. Look at the economy and how it is affecting consumer spending patterns.
Try to anticipate where the market as a whole is headed over the next 3, 5 or 10 years.
Today’s publicity or growth of a franchise brand name may be a lagging indicator. You may be too late to profit from that growth or publicity.
Look for Franchises with a Positive Future
Anticipating broader market trends, on the other hand, means looking for leading indicators. You want to catch the upswing of something big — before it happens or just as it starts to happen.
In your excitement to become an owner, to finally be in control of your career, don’t forget to ask yourself this even better question:
“Is the franchise I’m thinking of purchasing right for ME?”
If so, maybe it can become a “hot” franchise for you and your family.