Foodservice establishments, especially quick-service restaurants (QSRs), have always played a major role in franchising. 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.

Franchising remains prominent 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 2004 study prepared for the International Franchise Association (IFA) Educational Foundation by PriceWaterhouse Coopers.

Franchise systems account for almost 80% of U.S. jobs and payroll in the QSR segment, along with total economic output of $106.7 billion a year. Franchising plays a smaller role in the full-service restaurant segment, accounting for 21%-22% 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.

"Fast-food chains and full-service restaurants together account for about 60% of the $455 billion 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. 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.

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.

"Are you using foodservice outlets more than in the past? The average American is not," Balzer said. NPD Group's research shows that annual per capita meals purchased away from home peaked at 261 in 1998, leveled off at 260 from 1999 through 2002 and have declined slightly, to 257 in 2003 and 253 in 2004, since then.

"It peaked around 2000 and found an equilibrium or balance," Balzer said. "There could be any number of reasons for that, including uncertainty about the economy, but it is interesting that the flattening has coincided with the leveling off of growth among women in the workplace. The number of women working outside the home has been holding steady at about 60% for the last five years or so-the same period that has seen the flattening of growth in foodservice meals."

Balzer believes that the greatest opportunity for reigniting that 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 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 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.

"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 decor 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 $29 billion in 2004, 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.

There is also plenty of good news in other established segments of the foodservice industry. Total restaurant-industry sales are expected to reach a record $476 billion through 900,000 restaurant locations-franchised and non-franchised-in 2005, 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 4.9% increase over 2004 and a total economic impact of more than $1.2 trillion-highlighting the restaurant industry's critical role as a job creator in the nation's economy.

"American consumers will spend almost 47% of their food dollar in the restaurant community in 2005," said Steven Anderson, president and chief executive officer of the NRA. "The restaurant industry will serve as a driving force in our nation's economy by providing jobs to 12.2 million employees, and it will continue to provide a social oasis and convenience to communities nationwide as it posts its 14th consecutive year of real growth in 2005."

The group's forecast predicts that the U.S. restaurant industry, which created an average of 270,000 new jobs annually over the past decade, is on track to add 1.8 million new jobs over the next 10 years. On a typical day, the industry will ring up sales of $1.3 billion in 2005.

"The restaurant industry in the United States reaped the benefits of the robust economic growth in 2004," said Hudson Riehle, senior vice president of research and information services at NRA. "Steady gains in indicators such as personal disposable income and jobs continue to bode well for restaurants in 2005, despite the anticipated challenges of higher energy and food costs."

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

The sophistication of Americans' palates and knowledge of food. NRA research indicates that 25% of diners can be categorized as "adventurous" and are enthusiastic about trying new foods and ingredients. Most are between 30 and 60 years old, well-educated, more likely to live in larger urban areas and are the most active restaurant diners.

Among the major segments, sales at full-service restaurants are projected to reach $164.8 billion in 2005, an increase of 5% over 2004, for a real growth rate of 2.2%. Full-service operators are optimistic about the economy, with 75% of fine-dining operators, 69% of casual-dining operators and 61% of family-dining operators indicating that they expect their sales to be higher in 2005 than in the previous year.

The QSR segment is projected to ring up sales of $134.2 billion in 2005, a gain of 4.7% over 2004. Consumer demand for convenience and value will continue to drive growth for this segment, according to NRA's analysis. However, QSR operators will face stiffer competition from grocery and convenience stores.

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 NRA.

"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."

Moving forward, it seems likely that foodservice will be a changed industry in the 21st century, with that change most immediately visible in rising demand for fresh, nutritious menu choices, more-welcoming ambiance and decor, and an even greater emphasis on convenience than currently exists.

Opportunities for success will continue to be plentiful for prospective entrepreneurs seeking business ownership through franchising in the foodservice sector. But in an environment that is sure to be marked by ongoing change, due diligence and attention to detail in the franchise search process will be more important than ever.