QSR franchised units to grow 2.2% in 2024, IFA says

Dive Brief:

The QSR segment is expected to increase its total franchised units by 2.2% to reach 199,808 compared to 195,507 in 2023, according to the International Franchise Association's 2024 Franchising Economic Outlook. This means there will be 4,301 franchised restaurant openings this year.
QSRs will be the second fastest-growing industry in franchising after the personal services sector this year.
Despite the projected growth, franchisees continue to face challenges from costs of inventory, supplies and materials, with 65% of QSR operators saying inflation had a substantial impact on their operations.

Dive Insight:

Many chains, from McDonald’s and Del Taco to Potbelly and Qdoba, are all expecting to grow units in 2024 and in future years, but some conditions could slow that expansion down. Last year was marked by a handful of bankruptcies among QSR operators for chains like Burger King, Popeyes and Wendy’s, and there could be bankrupcties this year since conditions are unlikely to improve dramatically.

QSRs are also facing challenges related to labor costs and shortages, as well as increased real estate costs, the report said. Ninety-one percent of QSR operators said labor remains a challenge even though employment will grow 2.2% to nearly 4 million employees, the report predicts. More operators will need to adopt technology to help with labor shortfalls and to boost wages and benefits to better attract employees. Some chains have already been adopting self-service kiosks to help with front counter labor.

Real estate will remain challenged as well due to high interest rates increasing the cost of real estate. The report said that Frandata expects more drive-thrus and smaller-sized QSRs that typically cost less than $500,000 in initial investment costs. Several chains like Taco Bell, McDonald’s, Krystal, Captain D’s and Del Taco have already been building and testing smaller units, often with a small dining room or no dine-in service at all.

While many operators increased prices to counter financial problems, business continues to grow. The IFA expects the QSR franchise industry output will rise 4.7% from $287 billion last year to $301 billion this year largely due to a return to office and uptick in off-premise demand.

All things considered, the IFA anticipates this year to hold more promise for the foodservice industry.

“The food service industry is expected to experience better conditions for growth as food prices decline with inflation,” the report said. “Additionally, investor confidence will be restored, and with pent-up demand for investment opportunities, 2024 is poised to witness increased activity in the equity and M&A field.”