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While the world continues to respond to the current unpredictable economy, the resulting trends are opening doors of opportunity for the franchise industry over the next year.
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Successful businesses tend to have the talent for spotting trends over fads. While a fad is a passing fancy, a trend points towards the future and opportunities. Exploring franchising trends that emerged in what will prove to be one of the most challenging economies we have ever seen, everyone in franchising can find opportunities like never before.
1. Cohesive partnerships
Franchising only works when franchisors get wealthy by helping their franchisees get wealthy. While this might sound obvious, the trick is creating a cohesive business that continues to succeed based on past success. When done right, franchises create a cycle, with franchisors actively promoting their franchisee’s success and franchisees wanting their franchisors to succeed. This keeps everyone focused on the same goal and avoids a dangerous “us versus them” mentality.
2. The ideal franchisor
Today, the ideal franchisor has 500-plus franchise units with fewer than 50 franchisees. Happy, successful franchisees will grow their businesses into larger territories. They focus on scaling their business exponentially, using free cash flow to reinvest into building more units. Large territory, multi-unit franchisees are the best way for a franchisor to operate a franchise business with less effort put into monitoring franchisees and a much higher return when they sell the company.
3. Long-term value
Historically, franchisors have regarded the franchise fee as the only source of revenue from a franchisee. Today, franchisors consider the long-term value of their franchisees. A franchisee pays royalties into the system that could equal millions of dollars over the lifetime of the business. Franchisors are focusing on nurturing their franchisees and providing the tools they need to succeed.
4. Private equity and professional investors
More private equity and professional investors see franchising as a way to earn steady, predictable revenue and profits. Investors can witness the snowball effect of compounded returns resulting from an investment that generates enough profit to reinvest successfully. More investors will see franchises as a self-perpetuating investment that generates profit to meet their long- term wealth-building goals.
5. Social scrutiny
Social media sets a franchise up to scrutiny. As billions of customers with iPhones consider themselves food critics, franchisors have no choice but to hold franchisees to the highest standards. If someone reads about food poisoning at a location across the country, the effect rippling to the other coast is hard to ignore. Franchisors often use oversight systems, like a district manager program, to monitor their franchisees to minimize chances of failure to follow proper procedures that could result in negative press.
6. COVID-driven needs and opportunities
2020 introduced a down cycle of scary proportions and brought opportunity. Ghost kitchens create opportunities for companies with the foresight to change their model. Off-premise sales are about the brand bringing their product to customers. The shift from dine-in and take out to new options such as curbside pick-up and Chipotle’s “chipotlanes”, has shown that scrappy business owners have innovated new ways to operate their businesses and change with the demands of society.
“As sad as COVID-19 is, it has created new opportunities”
Businesses can now start up for 50 to 80 per cent less than they would have in better days, opening in low-cost conversions of shuttered businesses or with smaller footprints. Smart franchisees take advantage of the great real estate deals and available labor force to grow their businesses. As sad as COVID-19 is, it has created new opportunities.
7. Quick growth, new concepts and health
Health and wellness are very much in vogue, but it goes beyond the bland and uninteresting foods we saw a decade ago. Instead, developing flavorful options that are not only tasty and healthy, but that also put our social conscience at ease are important. A good example of this is the speed at which the new healthy, socially conscious Sweetgreen chain emerged. It raised an unheard of $1.5bn valuation in less than 10 years.
However, at the polar opposite of their offering, Five Guys burger joints grew from four locations to over 1,000 in the same amount of time. So, what really sells is new concepts that allow supply lines to be created in days, not years.
8. Black Lives Matter and diversity
Franchisors and franchisees must embrace upward opportunities for everyone and diversity on their teams. This requires even more commitment to improving the lives of employees. Opening doors and developing clearly multicultural franchise businesses. Diversity is at the heart of society and a commitment to equality in hand with embracing diversity helps pave the road for success, not to mention a more unified world. Ethnic food is a void waiting to be filled. Despite a population of 1.5 billion Muslims and 1.5 billion Indians, until recently there were very few restaurants serving food to this growing audience. Supply has finally met demand, with Middle Eastern and Indian concepts growing during 2020. They’ll continue growing at light speed throughout 2021.
9. Fair pay
Across the board, everyone must commit to fair pay. The days of paying a staff as little as possible to earn more profits is over. It’s time for a new mindset that declines to concentrate on returns at the cost of employees. Franchises are only as strong as their people. A happy team meets goals and takes care of customers. You can leverage the tragically high unemployment rates to find the top candidates, but be sure to reward your top employees motivating them to stay.
10. Improved wages, improved career paths
Attracting top talent will get better for franchisees as they move toward a people-first mindset. The first hire a new franchisee makes should be their director of operations acting as the GM for the first location. This employee is not a cost, it’s an investment.
“More investors will see franchises as a self-perpetuating investment that generates profit to meet their long- term wealth-building goals”
Make aligned compensation part of their compensation plan and suddenly that DO has skin in the game. Get a strong management team in place long before they are needed. Then when the second store opens, promote from within as your management team spreads out across the new locations, allowing your DO to oversee them all.
While the world continues to respond to the unpredictable economy of an ongoing pandemic, the resulting trends are opening doors of opportunity for the franchising industry in 2021. And don’t forget: franchising only works when you get wealthy by helping others get wealthy.
Dan Rowe is the CEO and founder of Fransmart, the franchise development company responsible for the international growth of brands like Five Guys, Qdoba Mexican Grill and The Halal Guys.
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