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What will franchisees look like after the recession?

May 21, 2020

Read for 5 min

The opinions of the employees of s You are personal.


What will franchisees look like after the recession?
What will franchisees look like after the recession?

In franchising, most companies know how to prepare for seasonality, employee turnover and economic shocks. But no franchise system had to face the breadth and depth of the economic impact of our current and uncertain times.

The good news? Franchise sales will recover at some point And with a longer sales period of months, franchisors can prepare their organizations and step up their lead generation efforts.

Three key factors will primarily contribute to this revival, and they are the same factors that generally drive franchise sales regardless of economic conditions: people, capital and resources.

People

The unemployment rate is expected to average 14% in the second quarter of 2020 and 16% in the third quarter, before falling slightly in the fourth quarter.

Even many of those who haven’t lost their jobs are underemployed or look over their shoulders to see if they’re going to be the next ones to go.

One of the reasons why franchise sales have traditionally been good in a retreating economy is that unemployment or underemployment often encourage people to take the plunge to become theirs own boss.

As we saw in previous recessions, restarting companies may not immediately return to the same number of employment opportunities, especially at the top end of the market.

Many of the people whose jobs have been impacted, reduced, or eliminated have the hard and soft skills that are typically associated with franchise success (business experience, technological skills, leadership style, and willingness to follow systems).

If they cannot return to their previous positions or do not want to return to the corporate world, these people will of course look for viable alternatives to support their families and their future. Buying a franchise can be a natural option for many of these displaced professionals.

Capital

Buying a franchise is of course not the answer for everyone who is unemployed. The franchise will most likely be attractive to those with savings, compensation, or other financial resources that they can use to purchase a franchise.

The coming months should give these future franchisees better access to credit. Franchisee sales personnel should be aware of the funding options available to facilitate sales and avoid procurement problems.

resources

Unfortunately, some companies will fail in the current climate. Vacancies have already been seen in the commercial real estate market and the effects of longer closures are likely to result in more prime locations being available. Therefore, homeowners can be expected to be ready to negotiate and offer cheap deals on prime locations.

New or current franchisees who want to expand in the course of the reopening of the economy can use these favorable conditions for their physical locations.

The same applies to other providers in the franchise industry who suffered a severe blow during the crisis. Smart entrepreneurs will see this as the ideal time to start a new business, taking advantage of the special concessions, prices and post-graduation terms that providers will no doubt offer.

Perhaps most importantly, the availability of workforce for franchise locations is increased due to hourly employees and other job seekers to respond to the labor shortage that many companies experienced before COVID.

Despite the expected resurgence of franchise sales, a warning to franchisors: There will be a pent-up demand from all parties at some point that companies return to a “new normal”.

For some companies, this new normalcy can affect the underlying business economy of the model itself. And for these companies, it will be difficult but wise to stay on the sidelines and adapt to the new world order. For those companies that continue to be successful, it will be more important than ever to maintain the integrity of franchise candidate valuation and sales processes in the face of increasing demand.

It will not only be important to ensure that buyers are well capitalized, but also to fit the brand and franchise system in terms of experience, skills, philosophy and expansion goals.

Franchise sales are expected to increase in the coming years. When they do this, the crucial role franchising plays in the economy becomes more apparent than ever.

Companies wishing to start or continue their franchise programs should use this time wisely and prepare expansion strategies, make operational adjustments and support marketing tools and messages in anticipation of the resurgence.