Franchise Portfolio Diversification: Trends Taking Shape in 2022
4 Min Read By Chris Birkinshaw
The COVID-19 pandemic has ushered in a lot of chaos and accelerated several trends within the restaurant industry. From full service to fast-casual to legacy fast-food brands, the one constant was disruption. Many brands were able to turn a profit from the lockdowns and social distancing orders by shifting operations toward drive-thru, delivery, pick-up, and curbside models. This approach required fewer front-of-the-house staff to maintain a dining room, complied with government orders, and kept many brands from closing.
As the pandemic has progressed, initial approaches to challenges have subsequently required a high level of flexibility. Just as one issue seemed fixed, another presents itself. Today, operating a restaurant can seem more like a game of whack-a-mole than the running of a profitable business. Labor shortages and other factors are affecting the global supply chain in never-before-seen ways, and certain commodities are intermittently not available, or if they are, they’re expensive. One week it's ketchup packets, the next it’s cooking oil, then to-go packaging, and then another necessary element of the business, and so forth. This level of uncertainty is obviously making restaurant owners and fast-casual franchise owners nervous at the prospect of the industry going through a fundamental change, and what was considered standard practices may become unrecognizable.
The process of adapting to the changing dynamic caused by COVID sparked the idea among many franchisees that their big-box brand portfolios may be too cumbersome to continue with pre-COVID expectations and the thought of further societal disruptions placed their revenue streams and family finances at risk. The idea of diversifying portfolios toward concepts that were leaner but offered the same – or better – ROI began to take shape.
Diversify vs. Simplify
As multi-unit, multi-brand franchisees seek to craft the most effective portfolio, many have turned to diversification to maximize profits. The five major concepts have been the focus of diversification for years, if not decades: burgers, pizza, Mexican-food concepts, sandwiches, and most recently, chicken. The “chicken wars” had captured most headlines in the months leading up to the COVID pandemic, and a crowded field of fast food and fast-casual concepts have made attempts to get into the game. As the pandemic ebbs and flows, however, diversification seems to be shifting toward simplification, especially considering the ongoing economic turmoil, labor availability issues, and supply chain nightmares.
According to a report from S&P Global Market Intelligence, U.S. supply chains have suffered major damage due to the combined factors of the coronavirus pandemic, short-term corporate planning, and underinvestment in logistics. For the restaurant industry, the disruptions of a broken supply chain can eliminate key ingredients from inventory, which then force locations to remove items from menus temporarily, or indefinitely. Additionally, as inflation edges upward, and the lack of available workers drives hourly pay wages toward or past $15 per hour, many brands are forced to pass along these rising costs to their customers. For example, a CBS MoneyWatch article from June of this year cited several well-known fast-casual brands' move to boost prices as much as 4 percent to help offset higher labor and other costs. More recent price increases have nearly doubled this number. The recent supply chain issues have only exacerbated restaurant industry pain points.
An unstable supply chain coupled with a nationwide labor shortage and rapidly accelerating wages, has many multi-unit, multi-brand franchisees looking for concepts with optimized menus and fewer labor requirements. Concepts with this level of simplification greatly benefit those franchise owners seeking profitable portfolio diversification.
Staying Ahead of COVID-19 and Its Variants
Savvy franchise owners are seeing the writing on the wall, and moving toward concepts that are not only profitable, but also forward-thinking. Aloha Poke is a strong example of how simplification can help portfolio integrity and profitability while navigating the current situation. We are seeing this trend grow daily through the many discovery calls we field from veteran franchisees looking to simplify their fast-casual investment portfolios.
Compared to big-box brand concepts, and even when compared to other poke-style concepts, our operational, labor, and build-out requirements are optimized to start and maintain. For example, Aloha Poke’s concept does not require staff to man a 30 ft. service line because our menu consists of purposeful items, most of which are raw, natural, unprocessed, and simple foods that are sustainably sourced. Furthermore, our tuna and salmon are fresh-packed, Eco-Certified, and sashimi-grade, and are sourced through dedicated supply chains that allow us to track our product from “ocean to bowl.” Concepts like ours also do not require large, back-of-house kitchen utilities such as grills, fryers, or ovens, which lowers our overall build-out costs and optimizes overhead costs. These are all attractive operational aspects of fast-casual franchising that are resonating with franchisees as they look to protect and stabilize their portfolios going into 2022, and beyond.
According to industry analysts, the market for poke and similar food concepts is expected to grow by $1.2B by 2024. Through sustainable and responsible food sourcing that is clean, unprocessed, environmentally friendly, and less reliant on large-scale supply chains, along with needing fewer restaurant workers, concepts like Aloha Poke Co. are the fast-casual franchise model of the future.
As we continue to grapple with the fallout of COVID-19, many multi-unit franchisees are beginning to seek quality investment opportunities where operations are oriented towards less consumer friction, less reliance on physical interaction, fewer workers, and more focus on digital orders and convenience. The pandemic has revealed the pitfalls and pain points that many legacy franchises likely continue to face both in the short and long term. The new trend, now and into the future? Lower overhead, limited labor requirements, and a sustainable, stable supply chain.