With the rise of restaurant micro-franchising in recent years, the restaurant industry has seen a significant shift. This innovative approach to franchising is reshaping how entrepreneurs enter the food service industry.
In 2023, there were an estimated 806,270 franchise establishments in the United States alone, according to Statista Research Department. Forbes sees restaurant micro-franchising as a growing trend in 2024.
As consumers seek more unique and convenient dining experiences, let’s delve deeper into how restaurant micro-franchising has emerged as a solution that caters to these evolving preferences while providing economic opportunities not only for aspiring restaurateurs, but also for local communities.
We’ll examine its key characteristics, benefits, and how this trend is impacting the broader food service sector and what it might mean for the future of dining. From food trucks and coffee carts, restaurant micro-franchising is re-imagining how restaurants can operate and thrive in today’s dynamic market.
What is restaurant micro-franchising?
Micro-franchising is a business model that applies the same principles of traditional franchising to small-scale businesses, most common in developing countries. Think food carts, small coffee kiosks, and other small shops and services. Franchisees are provided with the tools, training, resources and operating procedures needed to set up a small, low-cost business and generate an income with low risk than starting a new venture from scratch. Franchisees operate under the franchisor’s trade name and guidance in exchange for a fee.
Brief history of micro-franchising
Poverty remains one of the most unsolvable issues in the developing world. Even great efforts from non-government organizations and charities are not nearly enough to alleviate poverty.
The success of microfinance programs inspired the concept of micro-franchising, emerging in the early 2000s as a way to address poverty and help economic development in low-income communities, such as in Bangladesh and India.
Micro-franchising sought to integrate the scalability of standard franchising with the social aspects of development programs to help bring economic development among low-incoming areas.
Often credited with coining the term “micro-franchising”, Jason Fairbourne and his colleagues at Brigham Young University explored and developed the concept around 2003-2004.
“Microfranchising is needed now more than ever. Poverty is ubiquitous throughout the developing world with little signs of diminishing.”
Jason S. Fairbourne
“MicroFranchising: Creating Wealth at the Bottom of the Pyramid”
(Fairbourne et al., 2007)
Early micro-franchising projects focused on sectors like healthcare, clean water distribution, and mobile phone services. One such example is Healthstore Foundation’s CFW Shops in Kenya, launched in 2000. It became one of the earliest successful micro-franchises in healthcare. Eventually, the idea gained traction throughout the 2000s, with organizations like the USAID supporting projects and initiatives.
Micro-franchising vs standard franchising
Similar to the model of a standard franchise, micro-franchising also involves the common elements and relationship between a franchisor and franchisee.
The franchisor provides the complete “business package” to the franchisee – the product or service, the business model, branding, operating procedures, training and support, and resources.
But unlike investing for a McDonald’s franchise, the business venture is low-cost and small in nature. It’s intended to be developed and run generally as an owner-operator business, usually in a limited territory or within a local community, from home or on a mobile basis.
By comparison, investing for a McDonald’s franchise would cost a hefty fee. The big fast food chain generated around 65.6 billion U.S. dollars in revenue from its franchised restaurants in 2023. On the other hand, investing in a micro-franchised brand, could only cost around to $900 to $6000 USD as an initial investment.
Brief overview of its emergence in the restaurant industry
As early pioneers of micro-franchising models proved successful in the 2000s, other sectors, particularly in the food and restaurant industry, took notice and began adopting similar models.
The concept became more an attractive approach especially during recent economic recessions, most notably the 2008 financial crisis and the COVID-19 pandemic. Many entrepreneurs searched for lower-cost ventures, in particular, investing in small food and restaurant businesses. Through the rise of food delivery apps, technology made it easier for small business owners to reach customers without needing large, traditional brick-and-mortar spaces.
Additionally, the smaller scale of micro-franchising models aligns better with concerns on sustainability such as waste management and supporting local organic products and suppliers, which appeals to environmentally conscious entrepreneurs and consumers.
Some countries also introduced more flexible franchise regulations and policies, making it more open for smaller business operations to adopt micro-franchising.
The rise of micro-franchising in the restaurant industry has been gradual but is now becoming more popular over the past decade, as it offers a model to test and expand concepts with lower financial risk.
Key Characteristics of Restaurant Micro-Franchising
- Small-scale operations – Involves small and micro businesses, and often operated by an individual or a family. Good examples are food carts, handicraft shops, coffee kiosks.
- Low initial investment – Low cost entry enables individuals and entrepreneurs with limited resources to make an investment and start a business.
- Standardized business model – Proven business operating procedures that are standardized can be easily replicated.
- Comprehensive support system – Franchisors provide complete training, marketing, and operational support, including resources and supplies.
- Social impact – Other than profit, micro-franchising also aims to create economic opportunities in local communities, especially in low-income areas.
- Risk reduction – With an established business framework, there is lower risk for new entrepreneurs investing in a business franchise.
- Scalability – Brands can grow for rapid expansion across multiple locations using their successful business models.
Benefits of micro-franchising
For franchisors
- Rapid market expansion: With lower barriers to entry, micro-franchising allows for faster market penetration, as well as an easier way to try concepts in different markets with minimal risk.
- Lower operational costs: Smaller food businesses reduce costs compared to full-scale restaurants.
- Adaptability: Micro-franchising allows for the flexibility to adjust the business model or concept based on market feedback.
For franchisees
- Lower initial investment and minimal financial risk: Initial costs are low to start a restaurant business, with less money to pay upfront.
- Access to proven business models: With a business blueprint already in place, a franchisee can start running his restaurant right away. And with simplified business operations and procedures, micro-franchising is often easier to manage, especially for first-time business owners.
- Training and support: Franchisees receive complete training on how to kickstart and run the day-to-day operations of the restaurant business, as well as other resources and supplies to equip the franchisee to be successful.
- Brand support: Franchisees benefit from a well-recognized brand, as well as the marketing programs of the franchisor.
- Faster return on investment: A consistent income stream and lower costs can lead to higher profit and a quicker ROI for the franchisee.
- Scalability: An investor can start small and potentially grow into larger operations or branch out in more locations over time.
- Niche market opportunities: Ability to cater to specific local preferences and enter untapped markets. Big brands are not usually aware of local markets, but local franchisees are more connected with their communities and can serve them better.
For customers and consumers
- Affordability: Lower overhead costs for the business can lead to inexpensive food prices
- Increased variety and local flavor: Micro-franchises explore more niche and specialized food concepts, as well as adapting to local tastes and cuisines.
- Convenience: Micro-franchises can be mobile and operate in non-traditional locations, bringing food options closer to customers. Examples like kiosks, food trucks, and food carts are more accessible to consumers.
- Personalized service: Local business owners often provide more intimate customer service and experiences.
- Supporting local businesses: Most franchisees are local business owners in the community, and customers can support these entrepreneurs while enjoying a trusted, known brand.
For communities
- Access to essential goods and services: Beyond the restaurant business, micro-franchising extends to serve the community with other goods and commodities, extending the network to food markets, farmers and suppliers.
- Job creation and economic development: Micro-franchising offers a path for entrepreneurs to start a business, and in turn, offer jobs in the community. Alternatively, many food concepts can be run by a one-man team, giving opportunities for more people to become solopreneurs
