Before we discuss the 5 Challenges Facing Franchisors in 2022, according to the 2022 Franchising Economic Outlook published by the International Franchise Association (IFA) with data from Frandata, we discovered some interesting facts you will want to read:
- “Franchising is expected to continue to expand, trending upwards with the United States’ overall economic progression, but the pace of the growth in 2022 is most likely to moderate, due to the current headwinds in the economy.” [pg. ii].
- “We forecast that franchising will end the year with more than 792,000 establishments, adding a net gain of 17,000 new locations, with a marginally lower growth rate of 2.2%.” [pg. ii]
- “Franchised establishments in the Personal Services sector are predicted to see the most growth in 2022” … “Commercial & Residential Services sector will remain the second-fastest growing sector in 2022 [pg. iii]
- “Due to labor shortages, franchise owners had trouble finding qualified workers to fill job openings, but franchising still managed to hire 8.2 million employees by the end of 2021” [pg.1]
- It is predicted that in 2022 that restaurants will lead sectors and that business and personal services combined will represent over 28% of the estimated total of 792,014 franchise units in the U.S. [compellation analysis]
- There are approximately 4,000 franchisors in the U.S. sharing in the estimated growth of 17 to 32 thousand units or an average of 4.3 to 8.2 new sales per franchisor in 2022. However, the average is misleading since most of the franchisors have less than 10 units since they began franchising. [compellation analysis]
CHALLENGE ONE: Pandemics
“During the pandemic, Congress passed multiple relief bills (PPP and EIDL) consisting of over $5 trillion in emergency relief programs. The franchise sector received access to liquidity, tax incentives and credits, and other emergency components of COVID-19 relief totaling billions of dollars.” [pg.2] Yet it is still difficult to find [workers]. A number of franchise fast food locations have to close certain days a week as people simply do not show up for work. Remote workers are no longer a fad, they are a reality. This is why the business and personal services 221,000 franchise units. Pandemics have created freelancers, home-based workers, and the Great Resignation. What is your strategy to overcome this market condition?
CHALLENGE TWO: ECONOMY.
Enough said! With inflation rising daily, recession looming, interest rates rising, and supply chains faltering; what is your strategy to overcome this market condition and thrive as a franchisor? Every crisis has at least two outcomes: Danger and Opportunity. Choose Opportunity.
CHALLENGE THREE: COST OF LEADS and Franchise Fees
In addition to inflation, franchise prospect leads are virtually useless. 10 years ago, you could expect to sell 1 franchise for every 50 leads with a good salesperson. Leads were under $25. Lead providers report today that it is 1 in 150 leads and leads of any quality are at least $30 to $75. Franchise brokers demand more commission per sale as it can cost them $4,500 to $11,250 per close as a marketing expense, not to mention hours of senseless prospecting. This has caused the average franchise fee to rise above $30,000. What is your strategy to get better quality buyers for your franchise?
CHALLENGE FOUR: OUTDATED RESPONSE TO MARKET PULL.
The customer sets the value of a product or service. The escalation in Franchise Fees is a barrier to entry by the consumer. According to Steven Covey, “If you don’t change what you are doing, you will keep getting what you been getting.” Are you experiencing lower franchise sales year over year?
CHALLENGE FIVE: INNOVATION
Agility, innovation, and the ability to navigate hostile waters are essential; franchisors, in the 21st century must face these facts. At Collaborative Franchise Systems (CFS), we are innovating in the franchise industry. We have assembled a collaborative of subject matter experts (SMEs) to find solutions to today’s franchisor challenges. Our Franchise Tune-Up is helping small existing franchisors to reinvent themselves and prosper in difficult times – we see opportunity, not danger! You should take advantage of our FREE One Hour Discovery Call – A $500 Value. A recent franchisor client said, “Where have you been? I learned more in the last hour with you than from my other consultants in the last two years!”
Dr. Needham is President and Senior Business Advisor at CFS and personally has over 34 years of experience in business and franchise development. He is an author, innovator, and industry thought leader.