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An Entrepreneur's Smorgasbord: Opportunities Abound in the Food Sector From vending machines and retail stores to fast-food outlets and full-service restaurants, the food sector ranks as one of the most bountiful segments of the economy when it comes to the breadth and selection of business opportunities available. According to the National Restaurant Association (NRA), restaurant sales are expected to reach a record $511 billion in 2006, up more than 5% over the previous year and marking the first time the industry's sales will surpass the half-trillion dollar mark. "With more than $1.4 billion a day in sales, the restaurant industry's share of the consumer food dollar is nearly 48%," said Steven C. Anderson, president and chief executive officer of the NRA. "In 2006 the restaurant industry is poised to set a record-over one half-trillion dollars in direct sales. It will also mark the industry's 15th year of consecutive real economic growth," he said. "As one of the nation's most aggressive job creators, the industry will employ 12.5 million in 925,000 locations." One of the top trends driving the food industry in 2006 is a heightened focus on health and nutrition, according to the NRA's research. Nearly three in four adults (72%) say they are trying to eat more healthfully than they did two years ago. More than half of all operations in both the fast-food and full-service segments reported greater customer demand for items such as salads and bottled water last year, and the popularity of wraps, pitas, tortillas and similar items is also on the rise. The same trend is evident in other segments of the food industry, such as convenience stores, grocery stores and vending. Foodservice establishments, especially quick-service restaurants (QSRs), have always played a major role in the overall food industry, and many of them are franchises. Indeed, thanks to the global visibility and near-iconic status of fast-food chains such as McDonald's, the sector has become synonymous with franchising in the minds of millions of people.
For traditional fast-food purveyors, such as burger chains, the fresh-food aspect presents an operational challenge, because it is more difficult and more expensive to maintain a supply chain to handle those items. Full-service restaurants, on the other hand, are able to provide the fresh food consumers are now demanding, but they lack the operational expertise to be efficient at scale, according to McKinsey's analysis. KEY TO SUCCESS Harry Balzer, vice president of the food research unit at NPD Group, a Chicago-based consumer marketing research firm, has been following trends in the industry for almost 30 years. He, too, is convinced that the combination of fresh, good-tasting food delivered in an efficient manner to meet the demands of consumers' on-the-go lifestyles is the key to future success in foodservice.Balzer believes that the greatest opportunity for growth lies in one area in particular. He said that consumers want fresh food that tastes great, but they don't want the hassle of having to prepare it themselves. Foodservice operators who find efficient ways to meet that growing demand will be best positioned for future growth, Balzer contends, and he summed up the opportunity in a single sentence: "You can see it sandwiches." Sandwiches and salads are extremely popular with diners because the best ones are made with fresh, wholesome ingredients, they taste great, and they're convenient for busy families with on-the-run lifestyles. That is, they're convenient as long as someone else is making the sandwiches and salads for them. As evidence of the strength of this trend, Balzer points to the burgeoning number of restaurants in all sectors of foodservice scrambling to add those items to their menus. Other opportunities may be found in coming up with new ways to deliver traditional menu items such as chicken and hamburgers, he added, but it has to be done in a way that meets the public's demand for freshness and good taste and makes the products cheaper or easier. "Ultimately, that is what we all want," Balzer said. "We want it to be as easy as possible. That's one reason we see continued growth in the use of drive-through windows, a trend that is expanding to include curbside service in the upscale segment. We are always looking to make our lives easier." McKinsey's research indicates that the best opportunities for growth in the foodservice sector will come in the middle ground of the fast-casual segment. It projects sales in that segment growing to $35 billion a year by the end of the current decade and possibly accounting for half of all foodservice industry growth over that period. To maximize profits, McKinsey suggests, foodservice operators should concentrate on dinner, which is already the consumer's top choice for out-of-home meals. The firm projects dinner accounting for 51% of meals prepared outside the home by the end of this year, versus 38% for lunch and 11% for breakfast. Foodservice operators have many options open to them in terms of food choice, according to McKinsey's analysis. "Today's adventurous and food-savvy consumer is willing to try almost anything-if it is fresh," McPherson said. He singled out fast-casual restaurants that offer a broad selection of freshly made sandwiches and salads as an example of how successful that strategy can be. "A wide and changing selection of menu items brings customers back, and they are willing to pay-up to $12 a visit-for their tastes," he said. "Contrast that approach with the burger shops' margin-crushing value menus, which feature items priced under a dollar." Another trend highlighted by the NRA's research is the emerging role of restaurants as homes away from home. With growing demand from plugged-in Americans accustomed to operating in a 24/7 society for amenities such as televisions and wireless Internet access, look for restaurants to bring more of these features to the table, Anderson said.
There are tremendous opportunities for prospective business owners in many tried-and-true segments of the food industry. Pizza shops are a good example. While consumers may be demanding more fresh ingredients and healthful menu choices, they continue to eat a tremendous amount of this fast-food favorite. Pizza restaurant sales are estimated at $30 billion in 2005, according to research by New York-based Business Trend Analysts Inc., and they are projected to increase by at least $1 billion this year. That's a lot of "dough," in both senses of the word. The number of pizza and pasta restaurants in the U.S. grew to about 75,000 at the end of 2004 from 61,000 in 2002, and franchising is responsible for much of that growth. The four largest franchised pizza chains operate a combined total of about 18,000 outlets, and there are dozens of smaller franchises systems enjoying robust growth. Pizza's popularity remains unwavering despite food trends, such as the low-carb Atkins and South Beach diets, which come and go. "Whether it's fattening or not, Americans still love their pizza," said Gregg Palazzolo, a market research analyst with Business Trend Analysts. Among the major segments of the industry, sales at full-service restaurants are projected to reach $173.4 billion in 2006, an increase of 5.2%. Full-service operators are optimistic about the economy, with almost 70% of fine-dining operators, 59% of casual-dining operators and 41% of family-dining operators indicating that they expect their sales to be higher in 2006 than in the previous year. The QSR segment is projected to ring up sales of $142.4 billion in 2006, a gain of 5% over 2005. Consumer demand for convenience and value will continue to drive growth for this segment, according to the NRA's analysis. However, QSR operators will face stiffer competition from grocery and convenience stores, and some of it will come from entrepreneurs pursuing business opportunities in those segments of the food industry. Over the past several years, the convenience store industry in the U.S. has moved in the direction of high-end technology systems that ensure better customer service and more-efficient security checks, according to a new study by MarketResearch.com. As a result, this segment has become increasingly attractive to prospective business owners. The number of convenience stores in operation increased by almost 6% between 2004 and 2005, the report states, and there are now almost 140,000 c-stores nationwide. Helped by the introduction of new, innovative product lines (not to mention skyrocketing prices of gasoline, which many convenience stores also offer), c-store sales have been climbing at double-digit rates recently and totaled about $400 billion in 2005. "The introduction of additional services such as ATMs and technology-enabled advances in customer service are luring growing numbers of shoppers away from supermarkets and to convenience stores," a spokesman for MarketResearch.com said. "This business is also very profitable, with margins approaching 24% and industry-wide profits surpassing $5 billion." Another sweet spot in the food sector is comprised of businesses targeting consumers' desire to indulge their sweet tooth with products such as ice cream. The U.S. ice cream market grew 24% between 1998 and 2003, according to a report by Mintel International. Sales are projected to continue growing at an annual rate of 7% in constant dollars through 2008. Frozen novelties represent the fastest-growing segment of the ice cream market, with sales of those products increasing 35% between 1998 and 2003. Many such products are sold through small shops and kiosks, and the outlook is for continued strong growth in this segment. Consumers aged 18-24 prefer to eat ice cream at shops and stands rather than at home, according to the Mintel report, and a number of exciting new business opportunities have sprung up in this area in recent years. Food industry economists predict economic growth in all regions of the U.S. in 2006, and that expansion will be accompanied by job growth in the food sector. The five top regions in terms of sales growth remain in the West and the South.
On the legislative front, the restaurant industry plans to continue its pivotal role in championing issues important to the nation's small business owners, according to Lee Culpepper, senior vice president of government affairs and public policy at the NRA.
HUGE EMPLOYER "With restaurant-industry sales equal to 4% of the U.S. gross domestic product, we are the largest private-sector employer in the country," he said. "We are poised to remain strong and will continue to grow, as long as key opinion leaders realize the challenges of small-business owners running a restaurant and can support the association's pro-employee/pro-employer public policy agenda.""As the industry grows, so will the number of career and employment opportunities in the foodservice industry," said Hudson Riehle, senior vice president of the NRA's research and information services division. "By 2016 there will be an additional 1.9 million jobs available in U.S. restaurants," he said. "Even with the challenges of rising energy costs and major hurricanes in 2005, the nation's restaurants entered 2006 with a solid performance and optimism about the future. Aspiring entrepreneurs who find the food sector to be a particularly attractive one have a lot of company. According to an independent poll conducted by the Gallup Organization in 2005, the restaurant industry is the most highly regarded business/industry sector in America. "Each and every day, the restaurant industry earns the respect of the American people by providing more than 70 billion meal and snack occasions," Anderson noted. Foodservice establishments are the cornerstone of both the nation's economy and its local communities, he added. Nine out of 10 restaurants are involved in charitable activities.
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