Changing Demographics Will Continue to Impact Franchising

by Ed Teixeira

The composition of the U.S. population continues to change. As these changes take place franchisors need to prepare and respond to these growing markets.

As the franchise industry strives to regain its prior growth track before the onslaught of the Great Recession, changing demographic trends will continue to have an impact on the composition and future of franchising. The changes in the U.S. population from 2000 to 2010 are striking. The groups that represent the largest increase are the Hispanic and Latino group and the Asian group. These changes represent a growing trend with implications for the franchise industry, as it looks to the future.

Changes in the percent of the U.S. Population by Ethnic Group

Source: United States Census Bureau

Based upon an article in Entrepreneur Magazine these changing demographic trends are already taking hold. In the Entrepreneur 500 issue, the magazine reports: “One trend in this year’s Franchise 500 revealed a proliferation of franchises aimed specifically at Latino communities.”

The Hispanic Market

According to data presented by Latinum Network (www.latinumnetwork.com) “the U.S. Hispanic segment made up more than 50% of real growth in the midst of a stagnant U.S. consumer economy between 2005 and 2008, with $52 billion of new inflation-adjusted Hispanic spending outpacing $40 billion of new spending by non-Hispanics. This growth can be attributed primarily to an increase in the number of U.S. Hispanic households, and secondly to an increase in consumer spending among U.S. Hispanics. In the food, beverage and restaurant business, this new spending offset most (84%) of the real decline in demand across the entire $1 trillion sector. “

Food consultancy group, Technomic, sees a trend in the U.S. from South of the boarder.

“Just as diners who love Asian fare have explored beyond Chinese to develop a taste for Thai and Vietnamese, those who favor Mexican are now looking south—all the way to Brazil, Argentina and Peru. We’ll see mainstreaming of South American-style grilled meats, chimichurri sauce, ceviche, South American-Asian fusion seafood dishes and iconic drinks, from Brazil’s caipirinha to Peru’s pisco sour.”

Franchisors in the food and beverage sector should heed some of these findings: *

• Over $9B of new value in Food and Beverage was created by Hispanics in otherwise dormant or declining categories such as fish and seafood, fresh fruit juice and dairy products between 2005 and 2008
• $5.9B of new value was created by Hispanics in growing categories where they represent approximately 20% of the growth such as vegetable juices and fruit drinks, meats including pork, ham and mutton and frozen meals, which represent the highest-growth food category among Hispanics.
• Hispanics are eating out more while others are cutting back, driving growth in fast food and full-service. In particular, Hispanics are increasingly likely to eat out during the work day, driving new sales in fast-food breakfasts and full-service lunches

In terms of business and home service franchises:*

• The increasing rate of Hispanic home ownership is driving growth in household goods, while non-Hispanics are doing the opposite - reducing real estate holdings and their purchase of household goods

*Source: Latinum

The Asian Market

According to Technomic, a food consultancy group, sales at limited-service Asian restaurants grew well above their international segment average in 2010, with a growth of 9.3 percent.

The National Restaurant Association ranked the top 10 trends for their annual restaurant show. Number 4 was Southeast Asian flavors. From coconut milk to sweet chile sauce, Southeast Asian touches were in demand at the show this year and from Technomic’s Take: What's Ahead in 2013? Number 7 is Noodle-shop noodles. Ramen done right is a long way from dorm fare; it’s nutritious, subtle, satisfying and redolent of exotic Far East street markets. Look for ramen, udon, soba, cellophane and rice noodles to show up in hearty layered bowls, fragrant soups and even mixed-texture salads, not only in a burgeoning number of big-city noodle shops but in seafood and varied-menu restaurants as well.

There is little doubt that the change in U.S. demographics will continue to reverberate throughout certain sectors of the franchise industry. Existing franchisors and franchisees would well to review their market demographics, note any trends and where appropriate make adjustments.

© 2013 FranchiseKnowHow, LLC

Ed Teixeira is the President of FranchiseKnowHow, LLC. He can be reached at franchiseknowhow@gmail.com