Deciphering What's Hot in Franchising From the Hype in 2006

For those searching for the hot franchise concept (like me) who are busy, you will find this of interest. In bullet point below are hot concepts from an Entrepreneur article on what’s hot and why. It leads off on how hot franchise buying has been last year -- “the total number of franchise units for all Franchise 500 companies grew 11 percent from 2004 to 2005. That's an impressive jump compared to the 4 percent increase that occurred from 2003 to 2004, not to mention the previous year's drop in franchise units.” I had also heard similar statistics through the grapevine from leaders of the IFA.

I wish there were more research details on why these categories are hot. I'm an average Joe (er, Juan) who likes to be spoon fed most things; however, research, data and reasoning are still important to persuade.

Here's a list of franchise concepts that have a little meat with quotes from Entrepreneur Magazine and other sources on why they're hot.

1. Pets. The American Pet Products Manufacterers Association estimates “$35.9 billion was spent on pets in 2005, up from $34.4 billion in 2004.”
2. Kid’s Specialty Services. There were 5,622 units in ’04 that grew to 6,422 in ’05. Expect demand for kid’s fitness, art and education to continue to grow.
3. Business Services is growing, with tech franchise systems more than doubling in size in the past two years – e.g. Geeks on Call, iSold It, QuikDrop
4. Fresh and healthy quick-service restaurants offering salads, soups and sandwiches. Quick-service restaurants saw a 4.7 percent gain in '05 over '04.
5. Home Improvement has seen a boom in 2005, particularly in home aesthetics such as home decorating, window and furniture stores. Driving this segment is the housing boom. Expect the housing boom to slow down in 2006.

The Franchise Times Fast 55 shows a similar trend by measuring how fast a franchise network grows by franchise units. Services has caught hold of the fastest growing franchises by more units than any other category (see Table below). It had 54% of the listings for the fastest 55 growing franchise systems.

Table. Breakdown of Fastest Franchise by Major Category

Services covers a lot of ground -- from personal fitness centers to business web design services. However, several areas clearly stand out --

• Home improvement. e.g. Handyman Matters, GarageTek. Owens Corning, etc.
• Child Services. e.g. KidzArt, SmartStart, CompuChild, Tutoring Club, etc.
• Business Services for Small Business. e.g. Wireless Dimensions, Geeks on Call, Netspace, National Supply Network, etc.

Besides quoting unit growth, here’s another reason quoted by Entrepreneur Magazine, “In the Know” article for kid’s specialty services being hot. “According to Tim Wiley, an analyst with Eduventures, a Boston-based research and consulting firm for the education market, schools that don't meet "adequate yearly progress" standards must provide students with supplemental education service activities. As a result, federal funding of about $2 billion a year is being provided for such activities as tutoring and enrichment programs. Since the majority of schools don't have in-house tutoring programs, many are turning to third-party providers such as franchises and will continue to do so, Wiley predicts, until they can establish their own programs.”