If there is a single industry more closely identified with the concept of franchising than any other, it must surely be foodservice. Restaurants and other eateries, especially those of the fast-food variety, have always played a major role in franchising. Known in industry jargon as quick-service restaurants (QSR), these outlets have achieved global recognition thanks to the ubiquity of brands such as McDonalds, Burger King and Subway Sandwiches.

Franchising is a dominant force in the foodservice sector, and its leadership status there is unlikely to change. In the QSR segment of foodservice, for example, franchised establishments account for more than 56% of all quick-service eating places in the United States, according to "Economic Impact of Franchised Businesses," a comprehensive study prepared for the International Franchise Association (IFA) Educational Foundation by PriceWaterhouseCoopers.

The top 10 QSR brands are all franchises, starting with No. 1 McDonalds, which had more than $27 billion in 2006 sales, and ranging down to No. 10 Sonic Drive-In, with more than $3 billion in revenues in 2006.

Franchise systems account for more than 80% of U.S. jobs and payroll in the QSR segment, along with total economic output approaching $120 billion a year. Franchising plays a smaller role in the full-service restaurant segment, accounting for about 23% of jobs and payroll and just over 13% of total establishments. Even so, it generates more than $37 billion of economic impact there.

While there seems to be little doubt about franchising’s continued prominence in foodservice, there is change—important change—underway in the sector. Experts say that what worked in the past is no longer a guarantee of success in the future. Changing market conditions demand new approaches, and the resultant challenges may be greatest for some of the industry’s most established formats.

One trend that has emerged over the past few years is the increasing role being played by robotics. With unemployment levels remaining low by historical standards despite a somewhat bumpy economy, QSR and other foodservice franchisees cite staffing and labor as their biggest challenge. Many have turned to kiosk ordering systems and other technological developments to address the problem.

Another challenge facing this segment of the industry involves a shift in consumer demand. "Fast-food chains and full-service restaurants together account for about 60% of the U.S. foodservice industry," said John McPherson, a principal in the research and consulting firm McKinsey & Co. "They are now suffering because more consumers are demanding what neither can profitably offer: fresh food served quickly in a distinctive, casual environment."

For traditional fast-food purveyors, such as burger chains, the fresh-food aspect presents an operational challenge, although many are rising to meet it with the introduction of salads and similar fare.

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 more than 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.

"Are you using foodservice outlets more than in the past? The average American is not," Balzer said. NPD Group’s research shows that the number of meals purchased at restaurants per capita has stopped growing for the longest sustained stretch in the 23 years during which it has been tracking that number. At the same time, the number of women working outside the home has been flat or down over the past several years, and analysts believe that is an important factor.

"There could be any number of reasons for the decline (in restaurant meals per capita), including uncertainty about the economy," Balzer said. "But it is certainly worth noting that the flattening has coincided with the leveling off of growth among women in the workplace."

After holding steady at about 60% for about five years through 2001, women’s participation in the paid U.S. labor force has been on the decline since then, according to the Labor Department. The number of meals per capita purchased at restaurants peaked at 211 in 2001 and has since declined to 207 in 2007.

However, that trend has been most troubling for independent foodservice operators, and NPD’s data show that many franchise chains are continuing to grow even while the overall number of eateries remains flat, at best. A big driver of franchising’s continued success in this industry is the popularity of takeout meals, which a rapidly growing number of franchise chains offer to their customers.

Balzer believes that the greatest opportunity for reigniting 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 sums up the opportunity in a single sentence: "You can see it in 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 adds, 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 while the foodservice industry is changing, it continues to be an area of incredible opportunity for potential franchise owners. "As America’s appetite matures, the foodservice industry must prepare for a number of consequences," said McKinsey analyst John Devine. "Chief among them will be a boost for full-service restaurants over the younger generation’s choice, fast-food restaurants."

The research and consulting firm sees the best opportunities for growth in the foodservice sector coming 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.

"In addition, patrons spend, on average, 40% more on dinner than on lunch, the next most popular meal," McPherson noted.

The company’s market analysis indicates that time-strapped consumers value control, personality and choice when making their dinner plans. It cites several examples of foodservice franchise concepts capitalizing on those characteristics:

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."

However, fresh food is more expensive to transport and prepare than the frozen variety, and the cost of upscale décor and ambience can add up over time. "Clearly, even the best service concept will fail if it lacks scale or operational efficiency," McPherson noted. That being the case, McKinsey acknowledges that fast-food companies might appear to have an intrinsic advantage in moving into the fast-casual market for a number of reasons:

However, fast-food chains also face some obstacles in getting the fast-casual success formula right, and that could open up the field to greater competition. Fast-food giants have scant experience beyond their limited menus, McKinsey notes, and their supplier relationships are narrow and not configured to deliver fresh food.

Just as important-and perhaps more so-their image and value proposition are liabilities in the eyes of consumers demanding fresh, healthful and convenient meals.

Change in an industry as massive as foodservice tends to be an evolutionary process. In the meantime, there are still tremendous opportunities for franchisees in many tried-and-true segments. 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 almost $40 billion in 2007, according to research by New York-based Business Trend Analysts Inc., and they are projected to increase by as much as $2 billion this year. That’s a lot of "dough," in both senses of the word.

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. There is also plenty of good news in other established segments of the foodservice industry. Total restaurant-industry sales were expected to reach a record $537 billion through 935,000 restaurant locations-franchised and non-franchised-in 2007, according to the current edition of Restaurant Industry Forecast, prepared annually by the National Restaurant Association (NRA).

The projected annual sales would mean a solid 5% increase over 2006 and a total economic impact of more than $1.3 trillion-highlighting the restaurant industry’s critical role as a job creator in the nation’s economy. Americans spend almost 48% of their food budget in restaurants, and the industry employs 12.8 million people and will add 2 million new career and employment opportunities over the next decade.

"Restaurants touch millions of lives every day by serving quality meals, providing abundant career and employment opportunities for individuals of all backgrounds and being a driving force in the U.S. economy and local communities nationwide," said Steven C. Anderson, president and CEO of the NRA. "The restaurant industry entered its 16th consecutive year of real growth in 2007."

Some of the key trends the National Restaurant Association predicts for the industry are:

Among the major segments, sales at full-service restaurants were projected to reach $181.6 billion in 2007, an increase of 5.1% over 2006. The QSR segment was projected to ring up sales of $150.1 billion in 2007, a gain of 5% over 2006. QSR operators will continue to offer busy Americans convenience and value, often while incorporating technology solutions that save diners time and money, NRA analysts concluded.

In the near-term future, QSR operators will focus on diversifying their menus; promoting "better-for-you" food and beverage choices; and making enhancements to their drive-through, takeout, delivery and catering options, according to the NRA. Gift cards will also present growth opportunities in the QSR segment.