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5 Best Franchise Opportunities for 2013

Stocks in this article: CMG PNRA

2. Fast-casual restaurants

Fast-casual restaurants are a growing subset of the traditional quick-service restaurants dominated by fast-food giants like McDonald's (MCD), Burger King (BK) and Wendy's (WEN).

The segment is hot because consumers are looking for convenience and value. As a result of the recession, there has been a "trade-down effect" by consumers from full-service restaurants to less expensive options. "Consumers still want to eat out, but don't want to spend as much money," says Sam Oches, editor of QSR magazine.

The fast-casual segment is a more "upscale" version of quick-service restaurants, where brands like Panera Bread (PNRA), Five Guys Burgers and Fries and Chipotle (CMG) have been successful.

"It's a more premium experience, higher prices, but still a counter-service model," Oches says.

While opening up a full-service restaurant or a well-known fast-food franchise, like a McDonald's, is out of most people's price range, the fast-casual space is ever expanding and less risky than a full-service restaurant.

"In some ways there is a surefire bet that you're going to have customers. People always want quick-service food," Oches says. And while profit margins are lower than at full-service restaurants, which take larger investments, "just based on the demand factor and that you can put a quick-service restaurant pretty much anywhere -- those two things make it really appealing for anyone looking to get into the franchising business."

"Fast casual is really exploding now -- it has for the last couple of years," and not just with well-known brands, Oches notes.

The number of quick-service restaurants in general is expected to grow by 1.7% in 2013, the third biggest percentage, according to the IFA's forecast.

And consumers, particularly the millennial generation, is eating it up.

Operators are experimenting with more multicultural options like falafel and Indian food. With its create-your-own dish menu, "Chipotle really established this model of food service that is ushering in a wave of new restaurants," Oches says. "There are all these food concepts that let you create your own dish with more premium protein options, ethnic flavors -- just stuff you wouldn't normally find in regular fast-food restaurants."

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