Nearly all businesses in the franchising world always are prepared for seasonality, economic recessions and staff resignations. Yet the current recession imposed by the coronavirus pandemic in the world is so deep that no franchise network have had to face the magnitude and scope of its economic impacts.
The good thing? Franchise revenues will ultimately recover, and with a lengthy, months-long drive-to-sale timeline, franchisees should begin preparing their companies and step up their lead generation efforts starting from now.
Three main drivers will largely lead to this revival, and they are the same drivers that fuel franchise revenue, irrespective of the performance of the market in general: people, capital and resources.
The unemployment rate is projected to average near to 14 per cent for the second quarter of 2020 and may hit 16 per cent for the third quarter before starting to drop marginally starting in fourth quarter. Even many of those who haven’t lost their jobs yet are jobless or gazing over one shoulder to see if they’re going to become the next to get there.
One of several causes franchise revenues have historically performed well in the downturn of the economy is that instability or underemployment also allows people to take the jump to become their own manager. Like we’ve seen in past downturns, when companies start up again, the same amount of available jobs — especially at the top end of the market — may not be immediately restored.
Many individuals whose jobs have been impacted, reduced or destroyed will have the soft and hard skills typical of franchise success (business acumen, technology skills, leadership style and desire to follow systems). If they are unable to return to their former jobs or are hesitant to return to the business world, these individuals will undoubtedly be searching for suitable options for their family and their future. Franchise ownership can be a perfect choice for most of these evacuated professionals.
Franchise ownership is not, of course, the solution for those people who consider themselves unemployed. Franchising would most probably be appealing for those that have a nesting egg, a severance plan, or other financial capital that they can use to buy a franchise.
In the near future, these prospective franchisees will be given better access to loans. Low-cost funding is now accessible in tandem with government initiatives to promote small business development. The growing list of SBA subsidies will help to stimulate small company growth, just like it did during the last recession a decade ago. Franchising sales staff (in-house, distributors or franchise distribution outsourcing) have to be informed about the funding mechanisms available to promote transactions and prevent hiccups in obtaining financing.
Sadly, several companies are going to collapse in the current environment. The commercial real estate business has already seen vacancies, and the effect of extended shutdowns is expected to result in many more prime locations being available. It can also be assumed that the landowners would be eager to compromise and offer attractive rates on prime locations. New franchise managers or existing owners looking to grow as the market re-opens should be able to capitalise on these attractive conditions for their brick and mortar locations.
The same could be said of other suppliers and distributors to the franchise sector who have endured a significant blow since the recession. Savvy businessmen will see this as the perfect opportunity to launch a new venture, exploiting the unique post-shutdown agreements, prices and benefits that vendors will no doubt deliver. Maybe most notably, there should be increased quality of jobs at the franchise location thanks to seasonal and other workers that are seeking employment, in response to the shortage of jobs that other companies have faced pre-Covid.
Alongside the expected revival in franchise revenues, one word of warning to the franchisees: there will inevitably be a high competition from both sides to bring the company back to a “new normal.”
Franchise revenues are expected to increase in the coming years. Once they do, the key role franchising plays in economic growth will be more apparent than it has ever been.
For certain companies, this new trend can have an effect on the internal business economy of the model itself. And for those companies, the hard-but-wise option would be to sit on the sidelines when adjusting to the new global order. It’ll be more critical than ever because of those businesses who continue to survive to preserve the credibility of the Franchise Applicant Evaluation and Distribution Processes in the face of rising competition. It would be important not only to ensure that customers are well capitalised, but that they are best matched to the franchise brand and programme in terms of experience, expertise, mindset and growth goals.
Franchise revenues are expected to increase in the coming years. Once they do, the key role franchising plays in economic growth will be more apparent than it has ever been. Companies seeking to launch or expand their franchise schemes should be best served to take this opportunity to implement growth plans, make organisational changes and improve marketing resources and communications in expectation of a revival.