Fresh! - Trends and issues in food franchising

Sushi donuts, flying pizzas and fermented teas. Craft beers, smokehouses and vegetarian hot dogs. Food trucks on MasterChef and Stone Age scones. Anyone looking at buying a food business right now might be understandably confused and wonder, ‘What’s coming next?’

Food has always been one of the most popular options for anyone looking to buy a business. After all, everyone has to eat and, as our population expands and more people eat out more often, it’s an ever-growing market. But it’s also a constantly changing one with food fashions, dietary trends, new competitors and even new delivery systems arising all the time to challenge the established leaders. Today, disruption is the name of the game, as in so many other sectors.

That’s why, when you’re looking to get started in a food business of your own, it pays to be aware of the changes, opportunities and challenges that you’ll face.

trend or trendy?

‘These days, everyone is so connected globally that it’s easy to see what the food trends are in any part of the world,’ says Conor Kerlin of Mariposa Restaurant Holdings, owners of the Mexicali Fresh and Burger Wisconsin franchises. ‘Sometimes New Zealand is first with the trends, sometimes we’re behind, and sometimes a trend proves to be so short-term or for such a small niche market that it never comes here at all. The trick for any food operator is to test and work out what will work here.’

Internationally, one of the current trends is for what has been termed ‘hybrid food’ – the mixing and matching of different cuisines on the same plate and even in the same item. Talking to QSR magazine, US restaurant consultant Michael Whiteman said, ‘Look for an explosion of hybrid menu items in 2017, including these unusual mash-ups: bilgogi hamburgers, pastrami-stuffed bao, Mexican ramen, congee with Polish sausage, sushi burritos and hummus in every flavour but pork belly.’

That might sound a bit far-fetched, outside Auckland’s Ponsonby Road at least, but Conor isn’t so sure. ‘I’ve seen sushi doughnuts here already,’ he grins. ‘It’s probably more of an Auckland thing right now, but every restaurant needs something to help it stand out – different ingredients or special menu items as a limited-time offer, no matter what part of the market it serves. A kimchi burger, for instance, will make people curious, get you talked about on social media and encourage people into the store to try it. They might go back to their normal burger afterwards but they’ve been excited.’

tradition with a twist

As Conor says, though, beef and chicken are still the big players in the burger market and, no matter how much people go on about trends, that’s where most of our money is still spent.

‘It’s important to remember that Ponsonby Road doesn’t represent mass-market New Zealand,’ points out Nathan Bonney, one of New Zealand’s most experienced food franchisors. Nathan is chief operating officer of Cobb & Co. and has previously worked with Columbus Coffee, Mexicali Fresh and Burger Wisconsin.

‘For many food businesses, it’s a question of finding new twists on old favourites, expanding the menu to suit certain customer groups and constantly improving ingredients, service and marketing to meet the market. That’s what you’ve seen McDonald’s and many others do over recent years, and it’s what they need to go on doing. That’s where being part of a franchise can be a huge advantage – the franchisor can research, develop and test constantly to help maintain their competitive edge.

‘And many franchises are self-seeding. They might start off in the cities but, as people relocate to the regions they take the brands with them. I’ve seen that with several people – they’ve moved to another centre and have bought a franchise there, perhaps for employment reasons, and have found a ready market among others who have already moved, know the brand and miss the product.’

vegetables are in

Whether it’s part of the long-discussed trend to healthy eating, the desire for new flavours and new experiences or the result of increasingly multicultural societies, internationally, vegetables are increasingly taking centre-stage. Vegetables are not just for vegetarians.

And, increasingly, freshness is vital. ‘People are a lot more informed about what goes into their products these days, and there’s a lot more talk about it thanks to social media,’ says Conor. ‘The recent controversy about the mis-labelled free range eggs in Countdown is a case in point. It used to be special to say you used free range eggs in a restaurant, but now it’s expected – demanded, even. Millennials are very aware of their purchasing power, and they’re prepared to use it. Using local products, supporting local growers and having an ethical supply chain are all becoming more important, right across the country.

 ‘I think it’s important to have multiple offers that don’t just meet the need of specialist groups, such as vegetarians or gluten-free customers but actually appeal to everyone. At Mexicali Fresh, we don’t do chips but we’re about to launch hand-cut fries, which are a big thing in the US, and we’ll offer them in burritos and with nachos, too. They are freshly prepared in store so it’s not departing from our staples but it’s an opportunity to bring in the people who “don’t like Mexican” and offer them something different.

‘At Burger Wisconsin we’re playing with monstrosity burgers – both meat and vegetable versions. One has no buns, just deep-fried portobello mushrooms filled with falafel and onion. Think of it as a vegetable version of KFC’s Double Down Burger (two slices of deep-fried crumbed chicken with bacon, cheese and sauce – no bun). Sometimes, you have to disrupt the market, grab people’s attention and get people to talk about you.’

measuring and managing

Of course, whether it’s vegetables or venison, good cost management is vital for any successful food business and even Conor’s short-term promotional items need to pass the cost test to ensure that they will produce a comparable gross profit with other items on the menu. ‘We track each item, the average spend of each transaction with the item, customer numbers and so on,’ says Conor. ‘In addition, each promotional item will have a strategic element, offering the opportunity to test out something like a new bun or a new cut. That way, we get real feedback to help develop new products that will benefit the franchisees.’

Nathan says that, ‘Most hospitality businesses operate on very tight margins and you have to control those properly if you want to make money. To be honest, a lot of people in this sector don’t have the controls to know whether they are making money or not. With a franchise, the franchisor can show you what the numbers should be, what to target and how to get there – it makes a big difference. A lot of people want to get into such an exciting industry, but can they make it pay? For independent owners, all too often the answer is no.’

Daniel Cloete, National Franchise Manager for Westpac, agrees. As he says in his article on how to fund a food business, there are four key elements every hospitality business has to control if they are to create a successful and sustainable business:

• Sales performance
• Gross Profit and food costs
• Wages, staffing and rosters
• Rent

 ‘A good franchise can help you with all of these,’ says Daniel. ‘For many franchisees, their biggest challenge is controlling staff rosters. The ability to benchmark against other franchisees is very helpful here – that’s why companies like Domino’s and McDonald’s know their roster costs to the last decimal point. I’ve noted, though, that a lot of the top-performing franchisees are prepared to pay a little above average to keep good staff, but they tend to have become top performers first so they know what to value in their people.

‘Even with a franchise, however, if you’re looking to get in on a new opportunity from overseas, you need to take particular care. Overseas franchises may not be familiar with New Zealand conditions until they have established their first few outlets here. For example, Australian wage costs tend to be higher as a percentage of turnover, while food costs are lower than in New Zealand, and average transaction values may differ as well. The model has to be adjusted to suit, and the benchmarking targets for franchisees as well. It’s an area where taking specialist financial advice before you buy is essential.’

And getting good help and support from the franchisor after you buy is vital, too. ‘That’s why we’ve just implemented a new system to help franchisees with the admin side of the business,’ says Conor. ‘To be honest, bookkeeping is the biggest hassle many of them face, so it tends to get left – and you can’t use the benchmarking info if you haven’t done your books for the last three months. 

‘We can understand that – the most valuable asset franchises have is time and they don’t want to spend it shut away in front of a computer when they could be out there, meeting the customers and growing the business. So we looked at how we could help. The result is a new cloud-based system that enables us to do their books for them, work out the KPIs and do all the benchmarking. It’s an opt-in service for a fee, but it means that they can focus on growing the business – and we have the data we need to help them do it.’

technology is changing the industry

Mexicali Fresh’s bookkeeping service shows how technology is changing the business-to-business aspect of hospitality – but it’s changing the business-to-customer side, too.

Visiting a fast casual restaurant in Auckland recently with my wife, the waiter who showed us to our table asked if we’d been there before. When we said, ‘No,” he explained the system. All items on the illustrated menu were numbered, including the drinks. There was a small order pad and a pencil on the table. We could take our time choosing what we wanted, then write the items and quantity on the pad. When we were ready, all we had to do was press a button and the waiter would be back to take our order and check any details. This was then entered on to a tablet that told the kitchen what we wanted and generated the bill. It was fast and efficient both for us and the restaurant and the bill was brought to us even before the food, so when we wanted to leave there was no delay. It could have been impersonal, but the friendliness of all the staff made it a very good experience. We’ll be going back.

That’s just one example: at Cobb & Co. wireless ordering means the customers’ drinks have probably been poured even before the waitress gets to the bar, while an Australian chain, Guzman y Gomez, is working with Google to develop an app-only ordering system both for in-store and drive-through orders. Domino’s is introducing new ovens that can cook a pizza in four minutes and its digital projects team is working on delivery vehicles with in-built ovens, driverless delivery robots and even delivery by drone.

But restaurants no longer need their own delivery fleet, at least in the main centres. The Uber Eats app was launched in Auckland earlier this year and turns Uber drivers into delivery drivers for any restaurant which has signed up to the scheme – and there are hundreds already. A locally-developed service, Urban Sherpa, offers the same but extends the offering to picking up shopping, dry cleaning or documents.

‘The takeaway market is already increasing at a faster rate than eating out, and a shared delivery system could help accelerate that,’ notes Nathan. ‘It’s certainly attractive for a restaurant to be able to increase sales from its existing kitchen, but it’s not necessarily easy. The kitchen needs to be able to cope with the extra demand, and of course not all food travels well, especially over a 30 minute journey. Taking advantage of the opportunity may require special menu development and special containers – aspects a well-resourced franchisor should be able to develop for their franchisees.’

Conor says that, traditionally, restaurants ask themselves how they can get more butts on seats but Uber Eats answers a different question: how can we get our food out to more people? ‘And it works. One of our franchisees was the highest-ordered restaurant on Uber the first week it launched in Auckland, and last week one of our stores did $17,800 of business from Uber Eats alone while another did $14,500. That’s an extra 30 percent or more. You pay a hefty margin (around a third – Ed.) to Uber Eats, of course, but if you have capacity in your kitchen it’s well worth it and of course it can take your food to a whole new market.’

the biggest challenge

The arrival of Uber Eats demonstrates just how fast people adapt to new offers and new opportunities. If you are thinking of entering the food business, you’ll find that the training, systems and support that a franchise offers can help you adapt fast, too, in everything from operations and profitability to legal compliance.

But there’s one more surprise for anyone new to the food sector. I asked Conor, Nathan and Daniel for the biggest challenge that faces new entrants and they all came up with the same response: just how hard you have to work at first.

‘I think some people come into hospitality expecting that they’ll be able to chat with customers all day while their staff do the work, but it’s not like that,’ smiles Nathan. ‘Hospitality is hard work. I don’t think I’ve ever worked in a franchise where new franchisees didn’t lose a significant amount of weight in training!

‘But if you can apply  the same discipline you would to a job, have the people skills to lead your staff and enthuse your customers, and work with the franchisor to learn what works and avoid what doesn’t, it’s a great industry – and you can build a very rewarding business.’

This article originally appeared in Franchise New Zealand magazine Year 26 Issue 1 - download to read it on your device here or send for a free print copy to be posted to you at any New Zealand address.

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