Not too many business owners were sorry to see the first decade of the 21st century draw to a close. Tough economic conditions raised challenges in most industries, and foodservice did not come through unscathed. However, a combination of long-term trends-including demographics and eating habits that appear to have been permanently changed over the past 15 years or so-bodes well for franchise businesses participating in various segments of the foodservice industry.

According to the National Restaurant Association (NRA), the restaurant industry employs about 13 million people, or 9% of the U.S. workforce, with many of those jobs coming from franchised outlets. Over the coming decade, the industry is projected to add another 1.8 million jobs; again, franchising will play a major role in driving that job growth.

Despite widespread economic problems last year, NRA projected total restaurant sales of $565.9 billion- a figure equal to about 4% of the U.S. gross domestic product- in 2009, an increase of about 2.5% over the preceding year. However, because of softness in certain segments of the industry during the final quarter of 2009, some analysts expect the full-year sales gain will be closer to 2%.

Despite slower growth during the recession, the foodservice industry represents a vitally important part of the U.S. economy, and it is an increasingly important component of the economies of many other countries around the world. The overall economic impact of the restaurant industry in this country was expected to exceed $1.5 trillion in 2009, according to NAR, which reports that every dollar spent by consumers in restaurants generates an additional $2.02 spent in the nation’s economy.

The U.S. Bureau of Labor Statistics (BLS) notes that eating and drinking establishments provide many young people with their first exposure to the job market. About one in five workers in the foodservice industry were between the ages of 16 and 19 in 2008, five times the proportion for all industries. The industry is also an important source of part-time employment for millions of people. Almost 40% of foodservice employees work part-time, more than twice the proportion for all industries.

"Food services and drinking places may be the world’s most widespread and familiar industry," says a BLS spokesman. "These establishments include all types of restaurants, from fast-food eateries to formal dining establishments. They also include cafeterias, caterers, bars and contractors that operate the foodservices at schools, sports arenas, hospitals and other venues."

Full-service restaurants and limited-service eating places (a segment of the industry commonly referred to as QSR, for "quick-service restauran't) accounted for more than 86% of the nation’s 546,300 privately owned foodservice and drinking establishments and more than 90% of the industry’s employment in 2008, according to BLS. It predicts that job opportunities will continue to be plentiful in this industry because large numbers of young and parttime workers will move on to other careers, creating strong demand for replacement employees.

Restaurants provide more than 70 billion meal and snack occasions a year, with some 130 million Americans patronizing a foodservice outlet on a typical day. In a survey of U.S. adults conducted for NRA, 68% said their favorite restaurant foods provide flavor and taste sensations that cannot easily be duplicated in their home kitchens.

Hamburger joints, pizza parlors, sandwich shops, casual-dining places and full-service restaurants ring up a combined total of $1.5 billion in sales every day of the week, on average. Almost 70% of adults say that purchasing meals from restaurants, take-out and delivery places makes it easier for families with children to manage their day-to-day lives. Long-term trends appear to bode well for franchises engaged in the foodservice industry.

Not surprisingly in these economically constrained times, when it comes to choosing a venue for out-of-home or take-out dining, 27% of adult consumers are paying more attention to coupons and value specials than they were two years ago, according to NAR. And 75% of full-service restaurant customers said they would patronize those establishments more frequently if they offered discounts for dining on less-busy days of the week.

Menu discounting and pricing promotions will remain prevalent in 2010, as restaurants compete aggressively for precious consumer discretionary dollars, according to consulting firm Gerson Lehrman Group. Value menus at fast-food chains and fixed-price offers such as "2 for $20" at casual-dining chains will help restaurants maintain customer traffic but may be a drag on profit margins.

Foodservice, especially the fastfood segment, is probably the industry most closely associated with franchising in people’s minds. Consumers now expect to encounter the familiar logos of chains such as McDonald’s, Domino’s, Subway Sandwiches and Dunkin’ Donuts wherever they travel, not only throughout the U.S. and Canada, but also in other parts of the world.

The vast majority of the top 50 QSR chains are franchise operations, according to QSR magazine’s annual ranking, and the only non-franchise chain among the top 10 is Starbucks Coffee. (While many people assume Starbucks must be a franchise, the company’s management insists it has no plans to begin franchising the popular brand, although it does enter into licensing agreements with companies to gain access to locations that would otherwise be off-limits to it, such as airports, college campuses and hospitals.)

Historically, QSR franchises have fared well during tough economic times. Consumers who normally ate at more-expensive venues when times were flush would trade down to casual-dining and fast-food outlets when their pocketbooks were pinched. However, things went beyond "tough" for many people over the past two years, as unemployment rates tipped over the double-digit mark for the first time in decades.

High unemployment rates can actually benefit QSR restaurants, but only up to a point, says industry consultant Dennis Lombardi. People worried about the economy might trade down to a fast-food restaurant but still continue to eat out. However, when they lose their jobs, as millions have over the past two years, they tend to completely eliminate that indulgence from their budgets, he says.

NPD Group Inc. reports that while all segments of the restaurant industry have been affected by the economic downturn, especially in terms of customer traffic, the QSR segment has held up better than most. The market researcher predicts that the rate of visit declines will slow in the first half of 2010 and turn positive in the second half.

"Historically, the restaurant industry neither leads the economy into or out of periods of economic downturns," says Bonnie Riggs, NPD’s restaurant industry analyst and author of What To Expect When Economic Recovery Begins, a report on the restaurant industry. "This recession is generally believed to be more severe than those in recent history, and this time the industry not only realized traffic losses, consumer spending declined as well."

However, there are signs of improvement on the horizon, NPD reports. "While consumers may be worried about the future of their jobs and falling incomes, their attitudes about the economy are slowly changing," says an NPD spokesman. "According to a recent NPD foodservice survey, consumers believe the economy is beginning to improve or, at the very least, is not going to get any worse."

For prospective franchisees looking to gain a foothold in the foodservice industry, there may never be a better time than the present. The best time to buy anything is when the market is at or near a bottom, and that holds true for buying a business as well. In fact, while sales of foodservice franchises were anemic through much of 2008 and early 2009, there is strong anecdotal evidence that activity began to pick up in the second half of last year, and many franchisors expect sales to be robust in 2010.

At the worst points in the recession, access to credit virtually evaporated as businesses stopped investing and banks stopped lending. The real estate market was in gridlock, and many franchisors saw applications for new franchises decline to a trickle or disappear completely. "It wasn’t just that things slowed down, they came to a virtual standstill," says the CEO of a 100-unit foodservice franchise chain based in the Northeast.

While the company had been receiving an average of 12 to 15 new franchise applications a month through the first half of 2008, it received almost none in the second half of the year and the early part of 2009. However, things have slowly begun to pick up, the executive says, with about 30 new applications filed in the last quarter of 2009.

A midsized sandwich shop chain based in the Midwest reports a similar experience. The 200-unit franchise system saw applications drop from about 1,000 in 2008 to just 600 in 2009, but the president of the company reports a noticeable uptick that started towards the end of last year. And Subway Sandwiches, the world’s largest franchise system by unit count, says that global franchise inquiries in 2009 surpassed those in 2008.

A number of factors are likely behind the rejuvenation of activity in foodservice franchise applications, starting with an improved outlook on the part of potential franchisees. "I think a lot of them simply decided that the worst is behind us, and it’s time to get on with life," says the vice president of franchise development at a pizza chain based on the West Coast. "The recession has made more people realize there’s a lot to be said for being your own boss. They want to take control of their own economic destiny."

Another factor is the large number of laid-off employees and early-retirees who received separation packages from their former employers during the job market contraction. With new jobs difficult or impossible to come by, many of them are investigating opportunities in franchising, using their severance money to help finance the ventures.

In addition, while credit markets remain tight, there has been some loosening in recent months, and the federal government is pressuring banks-especially those that benefited from TARP funding-to step up lending to small businesses. "It’s not as if a spigot has opened and money is pouring out," says Patty Williams, a SCORE counselor who works with aspiring entrepreneurs interested in purchasing a franchise. "But loans are slowly becoming available again for qualified candidates."

While the market for foodservice franchises may be improving, experts say this is still a great time for new franchisees to strike a deal. There are values to be had in the franchise marketplace, but first-time franchisees should be aware that measuring value requires more than just a focus on dollars and cents.

Too many novice franchisees focus solely on the size of their initial investment, says Darren Tristano, an executive vice president with restaurant industry consulting firm Technomic, Inc. While its important for start-up franchisees to stay within their budget, it’s often the case that a smaller investment will generate a smaller return. Getting a bigger payout might require investing more money, but that approach can provide real value for the franchisee over the long term, Tristano emphasizes.

When looking for the best franchise deals in the foodservice industry, it’s important to focus on several criteria. One is size, since chains with a larger number of units in the system are able to achieve greater economies of scale. That generates savings on everything from supplies to marketing expenses, and those savings should be passed along to franchisees.

However, a chain that is too big can present a totally different set of challenges to franchisees. Franchising succeeds because it harnesses the entrepreneurial energy of individual business owners. If a system gets too big, it can stifle creativity and limit flexibility, hamstringing the very attributes that animate entrepreneurship to begin with.

Name recognition is also important. One of the most important things you are buying as a franchisee is brand recognition. Consumers develop a set of expectations around the dining experience associated with specific franchise brands. When they see that logo on your store, they know exactly what they’ll be getting-and that’s important to them.

Even the best-run franchises have struggled with unit growth over the past couple of years, but prospective franchisees should take a close look at longer-term trends. Franchise systems that have been growing steadily over the previous five, seven or 10 years are likely to benefit from a dynamism that is lacking at chains that have been contracting over the same period.

One trend that analysts are predicting for QSR outlets in the coming years is their emergence as places where consumers will "hang out" as well as dine. Leading chains such as McDonald’s are beginning to offer free Wi-Fi service to customers as an inducement for them to spend more time in their restaurants, and hopefully buy more products while they’re there. Others can be expected to follow suit. Franchises that command a specific niche within their industry segments may be best positioned to establish themselves as destination spots.

Technomics predicts that the industry will also see a lot of menu innovation in the coming months and years, as restaurants look to entice recession-weary diners with compelling reasons to eat out. Five trends it says will stand out are: