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February 5, 2016
Start celebrating now if you own a franchised restaurant, because it looks like the good times are back. A team of top economists forecasts that in 2016 both quick service and full-service restaurants will see sales rise by 6.3 percent over 2015. Employee productivity should go up, too.
This number comes from “Franchise Business Economic Outlook for 2016,” a report produced by global analytic and economic forecasting firm IHS Economics for the International Franchise Association Educational Foundation. The study looks at the franchise sector of the U.S. economy, not the whole economy. Thus IHS isn’t making a call on the entire restaurant industry, just on the franchised operations within it. But what it sees coming for this very large group of restaurant owners sure looks good.
“As the job market continues to improve, gasoline prices remain low and wages are starting to see some modest pick-up, consumers are able to spend more on food away from home,” the report notes. “It appears that one area where consumers have spent some of their windfall in purchasing power from lower gasoline prices is in eating out, as economy-wide sales in both segments of the industry are on a pace to finish the year with growth rates near eight to nine percent. Full service restaurant sales growth outpaced the QSR segment in three of four years during 2011-2014 and likely did so again in 2015.
“Within the franchise full service restaurants business line, we have boosted our forecast of 2015 sales slightly, and it now shows a 6.1 percent increase in 2015. We project 6.3 percent growth of sales in 2016. This will translate into higher productivity, as we project a 3.3 percent increase in employment in 2016.”
The key driver of this growth? Real disposable personal income, which rose 3.6 percent in 2015 and should rise an additional 3.1 percent in 2016.
Some franchised restaurant growth might come at the expense of independent operators. “By most measures, the franchise sector will continue to grow at rates that exceed the economy-wide growth of industries where franchises are concentrated,” IHS says. That could translate to a smaller piece of the pie for operators not associated with a franchise.
While restaurants should do well this year, franchised lodging chains are expected to have the highest rate of growth during 2016. The study predicts a 6.6 percent increase over the prior year.
The retail food category, however, is forecast to have the weakest results of any of the 10 franchise industry business segments IHS tracks. This grouping includes food and beverage stores; convenience stores; foodservice contractors; caterers; retail bakeries; beer, wine, and liquor stores; as well as gas stations with convenience stores. Growth will be hard to come by for businesses in this category.
“A sharp increase in spending on food away from home has come to some extent at the expense of slower growth of consumer purchases of food for off-premises consumption,” IHS declares. “Economy-wide consumer spending on food and beverages for off-premises consumption grew an estimated 1.3 percent in nominal dollars in 2015—below the average pace of 2.1% of the previous three years.”
The sharp increase in takeout and delivery business among all types of restaurants may be one reason retail food’s numbers could lag.
While restaurant sales are forecast to rise at a strong pace, franchised unit growth should be more modest. IHS sees the number of franchised full service restaurants units climbing to 38,244 in 2016, an increase of 1.6 percent. That’s just a slightly better rate than the 1.5 percent growth rate for QSRs, which should number 159,839 by the end of 2017.
Again, these projections apply to franchised restaurants. Keep an eye out for the National Restaurant Association’s 2016 industry forecast, which should be released very soon. It will provide a look at how the overall restaurant industry will do this year.
Contact Bob Krummert: [email protected]
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