Is Now a Good Time to Become a Franchisee?

Thinking about becoming a business owner, but worried about the current economic climate? You're not alone.

Many aspiring entrepreneurs are asking, "Is now a good time to become a franchisee?" It's a complex question without a simple answer, but one that warrants a deep dive.

In this article and podcast, we'll explore how both franchisors and franchisees are navigating today's economic conditions, and how they're strategically positioning themselves for significant growth when the economy inevitably shifts.

Current Economic Overview

The economy is a dynamic entity, constantly evolving and often defying predictions. Yet, amidst this perpetual motion, one constant remains: people continue to invest in businesses. Interestingly, many savvy entrepreneurs view periods of economic uncertainty as prime opportunities – a "buy low, sell high" moment to enter the market when others might be hesitant.

This perspective is particularly relevant to the franchising sector right now. Despite broader economic concerns, franchising is not just holding its own; it's projected for significant growth. The International Franchise Association (IFA), a leading authority in the industry, has released compelling data underscoring this trend.

The IFA projects that franchising will actually grow at a faster rate than the overall U.S. economy in both 2024 and 2025. Specifically, they anticipate a 2.5% growth in franchise establishments in 2024 and 2.4% in 2025. This outpaces the broader economic projections of 1.9%. Furthermore, the total franchise output is expected to exceed an impressive $936.4 billion in 2025, marking a 4.4% increase over 2024 figures.

These statistics from the IFA, an organization with its finger firmly on the pulse of the business world, highlight the enticing potential of franchising. The industry's continued growth, even outperforming the wider U.S. economy, makes it a compelling avenue for aspiring business owners.

However, despite these positive outlooks, we recognize that many questions still arise during the franchise development process, especially concerning the economic climate. What are some of the most common questions potential franchisees are asking when considering if now is the right time to invest? We'll delve into those next.

Franchisee Concerns During Economic Uncertainty

It's completely understandable to feel a sense of unease when considering a major career or investment move, especially with economic uncertainty looming. We often hear from potential franchisees who are contemplating exiting their current jobs due to a lack of confidence in their companies and a strong desire to build something of their own. Franchising presents an exciting opportunity to do just that: create long-term equity, build real estate holdings, and secure your financial future with a recognized brand.

However, a crucial point that many aspiring franchisees overlook is the timeline involved in opening a new restaurant. While the current economic landscape might feel a bit unpredictable, the process from initial inquiry to grand opening typically spans 18 to 24 months. This extended timeline means that by the time your franchise is ready to open its doors, the economic conditions could be vastly different.

Understanding Franchise Timelines

The extended timeline isn't due to delays from the franchisor, but rather the inherent nature of real estate acquisition, permitting, and construction. These are significant undertakings that require time, patience, and meticulous planning.

When you see a new restaurant being built, it's easy to assume the construction phase (which might take three to six months) is the whole story. But in reality, a considerable amount of work, including site selection, legal processes, and securing permits, happens long before any ground is broken.

This extended lead time actually presents a unique advantage during periods of economic fluctuation. By starting the franchise development process now, you're essentially timing your entry into the market for when the economy is potentially "firing on all cylinders."

While no one can definitively predict interest rates or economic shifts two years from now, the demand for fast food, for example, remains consistently strong. It's about looking beyond today's headlines and investing in the long-term potential.

Labor Market Challenges and Solutions in Franchising

One of the most frequent questions we get from prospective franchisees is about labor: "How many employees will I need? What's the hiring process like? How does the franchisor help with staffing, especially given recent labor challenges?" These are valid concerns, particularly in the quick-service restaurant industry, where labor can be a significant operational component.

The good news is that we're seeing some easing of labor shortages, meaning more people are actively looking for work. While wages are up, presenting a challenge for some businesses, brands like Jack in the Box are proactively addressing this by innovating and implementing solutions to optimize labor within our restaurants.

This means leveraging technology and strategic approaches to make operations more efficient. For example, we're exploring and implementing automation and AI to streamline tasks and reduce the overall labor footprint required to run a successful restaurant. The goal is to maintain a robust economic model for our franchisees by keeping labor costs in line.

Ultimately, the restaurant business is a people business. Beyond serving great food, what truly sets successful businesses apart is how they manage and empower their teams. As a franchisee, you'll need to be enthusiastic about recruiting, training, and developing individuals. The talent is out there; it's about fostering an environment where people feel valued and have opportunities to succeed.

When you're evaluating franchise opportunities, it's crucial to ask potential franchisors what they're doing to address rising labor costs and operational efficiencies. Have they publicly stated their investments in technology, automation, and training? Are they actively seeking ways to reduce the amount of labor needed in your restaurant while maintaining quality and service?

Jack in the Box has always been an innovator in this regard. We're not just keeping pace with competitors; we're continuously reinvesting in our model to ensure it remains current with today's standards for labor and operational costs. This commitment to ongoing innovation is something you should expect from any brand you're considering investing in. We understand that industry trends come and go, but our focus remains on providing solutions that benefit our franchisees in the long run.

Consumer Trends Driving the Fast Food Industry

In the quick-service restaurant industry, consumer demands are constantly evolving, especially in the last three to six months. We're seeing clear trends emerge, with customers consistently prioritizing affordability, convenience, and a seamless experience.

Today's consumer is looking for a delicate balance: they want affordable options without compromising on a premium product. Brands that can strike this balance, often through "barbell pricing" that offers both value and premium limited-time offers, are thriving. Jack in the Box, for example, excels here with its diverse menu, providing choices that cater to both ends of the spectrum.

Beyond pricing, the usual suspects remain paramount: speed of service and an excellent customer experience. Consumers have many choices for where to spend their money, and they simply don't want to be frustrated by long lines or inefficient service.

A significant shift we've observed, particularly since the COVID-19 pandemic, is the increased reliance on technology. Customers expect access to their favorite QSRs through various digital channels. This means ensuring seamless integration with third-party delivery services and making sure our brand is easily accessible across all relevant platforms. While there's still a place for in-dining experiences, the emphasis is clearly on speed, accessibility, quality, and an overall positive customer interaction.

One increasingly vital competitive advantage, especially in the last six months, is the 24/7 footprint that Jack in the Box offers. Prior to COVID, many restaurants operated late or around the clock, but this trend has largely faded. However, the demand for quality food late at night hasn't disappeared. There are simply not enough brands filling this void.

Most Jack in the Box locations operate 24/7, a key differentiator in today's market. This commitment to being open all hours means we also focus on developing a menu that caters specifically to the late-night crowd. This isn't just about offering extended hours; it's about strategically innovating our menu and marketing efforts to let people know they have delicious, accessible options when other places are closed. This focus on the late-night segment provides a significant advantage for our franchisees, tapping into an underserved market with consistent demand.

Market Growth: Hot Spots for Franchise Expansion

Beyond the broader economic picture, understanding specific market trends is crucial for aspiring franchisees. We're observing significant growth in particular regions across the U.S., driven by various factors.

The Southeast continues to surge as a hot market for both residential and business growth. Affordable housing, warmer weather, and longer summers have attracted a significant influx of people, leading to robust development not just in housing but also in QSR industry. States such as Florida, Georgia, the Carolinas, and Tennessee are experiencing considerable expansion, presenting fertile ground for new franchise opportunities.

Interestingly, the Midwest has emerged as something of a hidden gem. While sometimes overlooked, these states offer stable economies and often less direct burger competition compared to other regions. We've seen a lot of activity and interest in states like Wisconsin, Michigan, and Illinois. Despite some perceptions of population outflow, these markets maintain strong economic foundations and offer abundant real estate opportunities, including second-generation sites and new power center developments. When you delve into the economic factors of building a restaurant in these states, their attractiveness becomes clear.

Expansion Opportunities for Franchisees

For a brand like Jack in the Box, these growing markets in the Southeast and Midwest are particularly exciting. We have significant "white space" opportunities east of the Mississippi, which aligns perfectly with where much of the current and projected growth is occurring. We've already seen tremendous interest and development commitments in several new states within these regions.

This presents a compelling opportunity for both new and existing multi-unit franchisees. If you're an established franchisee looking to diversify or expand your portfolio, Jack in the Box could be an ideal partner to consider for your next venture.

When it comes to the physical footprint of our restaurants, Jack in the Box offers flexible models to suit various market needs and real estate opportunities. We have a smaller drive-thru-only model of approximately 1,350 square feet with a medium to large model ranging from 2,200 to 2,400 square feet.

The key difference across these models lies primarily in the size of the dining room and additional areas like storage or training space. The kitchen size remains relatively consistent, ensuring operational efficiency regardless of the overall footprint. This flexibility allows franchisees to adapt to different site constraints and market demands.

Exploring Franchise Conversion Opportunities

As prospective franchisees become more educated, a common and excellent question we receive is about conversion opportunities. With many existing QSR locations shifting, moving, or even closing, there's a natural curiosity about whether converting an existing building can be a viable and perhaps more affordable path to ownership.

It's a misconception that conversions are always cheaper simply because a building is already in place. In reality, conversions can sometimes be more expensive than new builds. This is a crucial point we emphasize with candidates. While the idea of leveraging an existing structure is appealing, there are often hidden complexities and costs involved.

While a conversion might seem like an "easy button," it's rarely that simple. The primary appeal often lies in the location. Many available conversion sites are in A+ or A locations—prime spots with established traffic and visibility that are highly desirable. Getting into such a location can be a significant advantage.

However, the reality is that conversions come with their own set of challenges. It's vital to step back and ensure that even an attractive existing building is the right location for a Jack in the Box franchise. You need to consider if the market is viable for the next 15 to 20 years. Has the market shifted, or is this location still poised for long-term success?

As mentioned, conversions frequently involve unforeseen expenses. There can be neglected issues behind the walls or in the infrastructure that will require significant investment. While most things are fixable, it's essential to approach conversions with realistic expectations about potential costs and complexities.

The most critical advice for considering a conversion is to perform thorough due diligence. Work closely with our experienced real estate team to meticulously analyze the demographics, psychographics, and traffic patterns. This isn't just about today's market; it's about projecting the market's stability and growth for the next decade or two.

Another crucial step is to understand why the previous restaurant closed. By digging into the history with real estate agents and local contacts, you can uncover whether the closure was due to factors inherent to the location or external circumstances. If the issues were outside the real estate itself, the opportunity becomes much more attractive.

Partnering with a brand like Jack in the Box, which has over 70 years of experience in the business, provides invaluable support in navigating these complexities. Our team has extensive expertise in various real estate footprints—whether it's conversions, end-caps, or free-standing buildings. We're here to help you walk through every scenario and ensure you make an informed decision.

Multi-Unit Incentives for New Franchisees

As a franchisor, we understand that providing valuable incentives is key to helping new franchisees establish a stable foundation for their businesses. With the recent release of our updated Franchise Disclosure Document (FDD), we're excited to share our enhanced incentive programs designed to support you from day one.

We offer two robust incentive options, allowing you to choose the one that best suits your financial strategy and business goals:

Option 1: $150,000 Interest-Free Loan

While typically the less popular of the two, this option provides a $150,000 interest-free loan directly towards the construction of your new restaurant. This significant capital injection can help offset initial development costs. The loan is then recouped by Jack in the Box through the standard 5% royalty payments over time. It's a straightforward way to ease the financial burden during the critical opening phase.

Option 2: Select Market Incentive Program

We offer an incentive to certain franchisees who have signed a Multi-Unit Development Agreement pursuant to which they have committed to open at least three (3) Restaurants in a ”Select Market.” For the purposes hereof, a “Select Market” is one in which food or other operating costs for franchisees are higher than average costs for other franchisees, due to supply chain conditions, as determined from time to time by us in our sole discretion. If we, in our sole discretion, determine that any Restaurants opened pursuant to such Multi-Unit Development Agreement qualify for this incentive, your Royalty for each qualifying Restaurant (which is currently 5% of Gross Sales) will be reduced to 2% of Gross Sales for the first five years after the subject qualifying Restaurant opens.

We believe these incentives demonstrate our commitment to partnering with new franchisees and providing a supportive environment for growth. They're designed to help you navigate the initial phases of business ownership and position you for long-term success.

Summarizing Key Insights for Future Franchisees

We've covered a lot of ground today, exploring the current economic landscape, insights from the International Franchise Association on projected franchising growth, hot markets for expansion, and the nuances of real estate and conversions. Now, let's distill these insights into key takeaways for anyone considering a franchise investment.

The most crucial advice is to look for a brand positioned for the future. This means a franchisor that is actively investing in technology and innovation to reduce operational costs, particularly labor, and improve your profit margins.

Perhaps counter-intuitively, sometimes the best time to get into a business is when others are slowing down. Remember that opening a new restaurant typically takes 18 to 24 months from the moment you sign a franchise agreement.

By taking action now, you're strategically timing your entry into the market to potentially coincide with an economic upswing. Waiting for the "all clear" signal could mean missing the optimal window of opportunity. People often seek new ventures, like franchising, when economic shifts make them reconsider their current career paths. Don't wait until everyone else has already started their engines.

Check Out These Additional Resources

We hope this article gave you a better understanding of whether or not now is a good time to become a franchisee.

At Jack in the Box, we’re looking for multi-unit franchisees who are excited to bring our craveable 24/7 menu to new markets across the country.

Here are some additional online resources you may like to check out:

• Jack in the Box vs McDonalds: Which Franchise is Best?
• 5 Reasons to Purchase a Jack in the Box Franchise
• What Are the Jack in the Box Franchise Requirements?

 If you have any questions, please contact our franchise sales and support team.