(Editor's Note: This article written by an industry analyst at IBISWorld. It is published with permission.)
By Devin McGinley
Small businesses make up the backbone of the US economy; however, in many industries, technological change and the consolidation of large players have posed challenges for the typical Main Street shop. In others, changing consumer attitudes, regulatory reforms and demographic shifts have created new space for small businesses to compete. To find growth opportunities for small businesses, IBISWorld surveyed barriers to entry, market share concentration and growth rates of small-workforce companies across more than 700 US industries. These are five industries that hold opportunities for small businesses.
Over the past decade, changes in consumer preferences have made small breweries increasingly viable in an industry that had previously been steadily consolidating, controlled by a few global conglomerates. The average company in the Breweries industry has shrunk in size, and more than 70.0% of beer companies now employ fewer than 10 workers. The specialty beers produced by these craft breweries, often in small batches with locally sourced ingredients, have gained strong followings among consumers, whose shift toward higher-margin beverages has gradually eroded the dominance of large, low-price beer producers. Meanwhile, several states have loosened restrictions on alcohol distribution, allowing more small breweries to serve their beer onsite or sell directly to local bars. While revenue for the overall Breweries industry has grown at an estimated average rate of only 3.0% per year since 2010, craft beer production has surged, expanding an annualized 18.8% over the same period. As a result, craft beer’s share of the $32.6-billion Breweries industry’s revenue is expected to jump from 7.5% in 2010 to 15.3% in 2015.
Craft beer proponents have cited acquisition activity by Anheuser-Busch InBev and MillerCoors as a potential threat to the future of small, independent breweries; the industry’s two largest companies have both purchased smaller breweries in recent years as sales of their own flagship brands have declined. Other small breweries have attracted large investors to help finance greater production capacity and wider distribution. However, the top two companies’ sales have remained relatively flat over the past five years, and their combined market share has dropped from 72.3% in 2010 to an estimated 63.9% in 2015, leaving room for craft breweries like Lagunitas and Dogfish Head to achieve growth organically. Although the boom years of craft beer are likely over and market entry and revenue growth are both expected to slow from their peaks in the beginning of the decade, IBISWorld expects craft beer sales to continue rising, at an annualized rate of 5.5% through 2020, which is more than twice the speed of overall Breweries industry revenue.
Mobile food vending revenue was stagnant in the years preceding the recession, when it mainly comprised undifferentiated offerings such as hot dogs and pretzels. However, its growth in recent years can be attributed to the meteoric rise of specialty food trucks. Food truck companies employ fewer than four workers on average, and most operate a single truck. With lower overhead costs and greater flexibility than traditional restaurants, food truck operators found wide appeal during the economic downturn by offering gourmet meals at relatively affordable prices. Even as the economy has recovered, their popularity has been bolstered by a trend toward healthier eating and consumers’ ever-increasing desire for convenience. As a result, Food Trucks industryrevenue is projected to reach $856.7 million in 2015, representing average annual growth of 9.3% since 2010.
Capital requirements in the industry are low compared with the rest of the food-services sector, making street vending a lower-risk pursuit than a brick-and-mortar restaurant. Still, municipal regulations will likely constrain market entry in the next five years. In many cities, compliance with health and zoning laws designed for traditional restaurants has proved burdensome for new entrants, and in some cases municipal officials have been reluctant to open local eateries to greater competition. However, some cities, like Austin, TX, and Portland, OR, have updated their ordinances to streamline the permit process and turn underutilized public areas into food truck “hubs.” Because the industry is so dependent on access to high-traffic urban areas, such efforts at regulatory reform will be a key determinant of its success going forward, and vendors’ prospects will vary by city. Nonetheless, food-truck revenue is projected to rise an annualized 3.1% over the next five years to reach $996.2 million by 2020.
Pet Grooming and Boarding
A new generation of “pet parents” has fueled growth for businesses providing high-value, luxury grooming and boarding services. As a result, the number of operators in the Pet Grooming and Boarding industry is expected to grow an annualized 5.0% to nearly 101,000 in the five years to 2015. Due to the industry’s low barriers to entry, 83.8% of companies are sole-proprietors who cater to local demand. According to the American Pet Products Association, rapid growth in pet services has been driven by younger, first-time owners who spend more on their pets than previous generations. Consumers generally view expenditures on their pets as nondiscretionary; even during the economic downturn between 2007 and 2011, pet spending remained a constant share of consumer spending. As disposable incomes have recovered over the past five years, more consumers have been able to afford luxury services for their animals, and consequently, Pet Grooming and Boarding industry revenue is expected to reach $6.4 billion in 2015, representing average annual growth of 6.2%.
Over the next five years, the number of cats and dogs kept as pets is forecast to grow faster than the number of US households, and continued improvements in the economy will better enable new pet owners to spend on high-value services. As chain pet stores and big-box retailers increasingly compete with standalone establishments, small businesses in the industry will likely offer more luxurious accommodations and deluxe grooming to differentiate themselves. The industry’s nonemployers will also gain increased legitimacy and be better able to attract business through online consumer review platforms. Through 2020, IBISWorld projects industry revenue to grow an annualized 4.3% to $7.8 billion, while the number of players will rise an annualized 4.4%.
An increasingly profitable and complex business environment has boosted demand for professional training in recent years, and Business Coaching industry revenue is expected to grow an annualized 6.8% from 2010 to 2015, reaching $11.8 billion. Business coaches, 85.9% of which are nonemployers who can easily enter and exit the industry with fluctuations in the economy, will benefit from 2.3% average annual forecast growth in corporate profit over the next five years, which will better enable businesses to invest in coaching for their employees. Across many downstream industries, rapid globalization and technological change have necessitated the acquisition of new skills. Meanwhile, millennials have grown to comprise 34.0% of US employees in 2015, according to Pew Research, for the first time surpassing both Gen Xers and baby boomers as a share of the workforce. Due to differences in communication styles and cultural attitudes, human resources professionals have paid close attention to the implications of this generational shift; one Ernst & Young survey found that 75.0% of managers reported being challenged by intergenerational teams. This may drive demand for business coaching moving forward, particularly as millennials themselves increasingly move into first-time leadership positions.
Improvements in technology will also continue to reduce overhead costs and expand the reach of business coaches over the next five years. Additionally, due to the industry’s low barriers to entry, rising demand will likely encourage new companies, especially sole-proprietors, to enter the market. As a result, intensified competition will push operators to specialize in a particular industry or carve out a niche; coaching for realtors will be a particular growth area as the housing market continues to pick up. Overall, the industry is projected to grow 5.0% per year on average to reach $14.9 billion in revenue by 2020.
Although Physical Therapy industry revenue has grown at a modest average rate of only 2.2% per year since 2010, healthcare reform and the medical demands of an aging population will bolster the industry moving forward. Expanded insurance coverage under Obamacare, as well as the law’s inclusion of rehabilitation services as an “essential health benefit” required in most plans, has greatly increased access to industry services. This expanded access transpires as the US senior population is ballooning; between 2010 and 2020, IBISWorld projects the number of Americans aged over 65 to increase an average 3.8% per year, compared with 0.8% annualized growth of the total population. Because this demographic has a higher incidence of chronic disease and mobility challenges, its expansion as a proportion of the population will increase demand for physical therapy.
The strain that the aging population will put on the US healthcare system, however, also inspired the inclusion of cost-cutting measures in the 2010 healthcare law, which will be a double-edged sword for the industry over the next five years. On one hand, lower reimbursement rates are expected to force some therapists to see more patients and partner with other healthcare providers to maintain profit margins. On the other, a sharper focus on preventive medicine will expand physical therapists’ role in the healthcare system. Despite a trend toward consolidation across the healthcare sector, the need to be close to patients and provide personalized care has kept the industry fragmented and the average operator small, with only about four employees. Over the next five years, IBISWorld projects Physical Therapists industry revenue to grow at an average annual rate of 6.8% to $42.8 billion.