Franchising fights a battle against indecision. "We
must resonate with consumers," says Jerry Wilkerson.
This is the eleventh year Franchise Recruiters Ltd.
has conducted the Annual Franchise Business Development Survey and
produced the Franchise Business Trends Report. One hundred franchise
executives are interviewed for the yearly survey and trends report.
They represent a cross section of commerce, industries, geographic
regions, and expansion history. These top producers provide the
trend setting data, vision, projections, and forecasts for the study.
This is the only study of its kind in franchising. The following
is a summary of the results of the study.
With the economy in a recession and the terrorist
attacks indelibly in focus, franchisors were reticent to venture,
with much exactness, into the commerce of new unit sales and growth
development. Industry leaders forecasted a full spectrum of development
from flat to upwards of 15 percent. The executives surveyed shared
their opinions based upon their instincts, commitment to fiscal
responsibility, results of senior management strategy, entrenched
experience, and good old-fashioned hope. Individuals commented with
somber reverence on the challenges they perceive in the first half
of 2002 and the expectations of a complicated, complex economic
recovery anticipated for the later half of the year. For the most
part, they were trying to temper the effects of a recession on their
business with the resilience of the American spirit.
A recurring premise reverberates from the 100 franchise
executives interviewed. To paraphrase: "Americans and all citizens
of our global society must have a sense of security and safety in
their everyday lives if we are going to build our way out of a worldwide
recession. Security and safety are the X-factors in the economy's
future. We must all work to establish peace on earth." Franchisors
designated indecision as one of their primary obstacles to overcome.
They agreed that there is money available for franchise unit investment
and that people must get on with their lives. We were told, "Our
growth and development battle is with indecision. We can't get people
to make a. [confounded] decision." For the many losing jobs and
for those facing corporate downsizing, franchising offers an excellent
alternative; however, given the aftermath of 9-11, many investors
are paralyzed by indecisiveness.
The following are some of the trends, issues, and
strategies for franchising in 2002.
- Competition for the consumer creates extraordinary pressure
on product price points in an anomalous economy. Constant price
review and adjustments will be prevalent throughout the year,
forced by an indecisive marketplace driven through prickly, elevated
points and plunging economic valleys. The strain will create a
roller coaster journey for field operations management, promotion
departments, and marketing. Suppliers will be forced to contribute
to the larder with price shavings, new products, training, and
- Retail sales and services franchisors must plan market development
more intensely. They will try to stay two seasons ahead of the
consumer in a vapid and capricious economy. We were advised to
"resonate with consumers." Again, suppliers will participate by
helping to bring new products and services to the marketplace
and by contributing with more than just money to support resellers
as they carve out identities in an ever-changing American business
environment. More than ever before, franchisees will look to their
franchisors for help. Marketing and operations departments must
be equipped for this exigency. It is no longer simply a question
of whether or not the contractual agreement will be fulfilled,
but rather will the unit, or franchisee remain in business.
- Security becomes a line item in budgets, an added cost of doing
business, but one that produces little yield. Without security
planning and risk assessment programs, a company can lose far
more than simple budget dollars. Consumers are watching, guided
by government directed awareness bulletins. Store protection for
shopper confidence and executive safety are paramount. Technologically
savvy workers will shore up computer hardware, infrastructure,
communications, and information systems. A simple virus or a direct
hacker attack can render a system helpless, destroy data, open
confidential files to competition, and devastate store operations.
Companies will need employees who know how to access and utilize
fresh information and technology in order to work smarter, more
efficiently and productively. Major hiring will take place in
this arena of discipline.
- Construction of multi-brand, free standing buildings, specifically
designed for competing food systems, are under development. Dual
branding is the future in nontraditional growth. Projects are
marshaled by national and regional independent corporate brands
management teams with a common focus. Melding the chains under
one roof, with the synergies of management and labor, provides
consumers with options at a central cost reducing location. This
concept is similar to food court dynamics, except locations are
outside malls with easier vehicular and pedestrian accessibility.
Look for other industries to duplicate the idea around business
and shopping complexes.
- Mature systems are establishing new criteria for store grading
programs. Unannounced visits by mystery shoppers and multiple
scheduled appointments with corporate operations teams report
on unit customer service, quality, and cleanliness. Toll free
numbers for consumer feedback are set in place. Operations management
checks how well store managers are motivating employees with bonuses
paid on total unit grade points. The top franchisee performers
haul up the bottom quarter of system units. Brands capture new
market shares through customer appreciation. Ultimately, tough,
dynamic franchisees could be pitted against weak, under-performing
franchisees for ownership of units. There will be considerable
legal backlash to this strategy as systems push for sustained
improvement. Some franchisees call the approach punishment as
management reviews operations and enforces contracts. Performance
standards must be met, or a culling of the systems will occur.
- Charting the course for locations has become a social science
for franchisors. Besides the usual demographic and geographic
requirements, add to the mix health club memberships, health care
facilities, real estate offices, financial institutions, churches,
civic clubs, Internet connections, cell phone penetration, and
retirement households. Catering to the boomers, new businesses,
ranging from education to entertainment to health care and other
services, will germinate with continued expansion in metro markets.
- Watch for franchisors to start cluster development around grocery
stores and neighborhood centers. Repeat and constant customer
traffic dictates address. What was old is new again. Service industry,
take out food, entertainment, and downsized retail stores will
figure prominently. Franchisors will continue development inside
mass retailers with kiosks and small footprint customer centers.
Tests with Wal-Mart, Home Depot, and other big box retailers have
proved successful for fast food, lawn care, home cleaning, and
services sector franchising, an approach providing one stop shopping
for home and hearth.
- The ripened methods of a franchise sales lead generation are
sputtering. Print advertising response is flat; discovery nights
are horizontal, too; traffic at franchise opportunity brokerage
offices has slowed; and trade shows may never be the same. In
fact, trade shows have become business seminars with only a dozen
or so selected franchisors participating in individual markets.
Produced by professional show organizations, the seminars replace
show booths with roundtables for afternoon and evening assemblages.
More one on one face time with prospects, prudent qualifying periods,
and personal minutes can be spent on potential franchisees. Special
use, resale, or specific locations may be targeted for development.
Franchisors get big show promotion, advertising, and PR, for half
the overhead costs of exhibit halls.
- There could be a winnowing of a few franchisors through the
year as consumers retrench and adverse business factors take hold.
The exigent economy will cashier systems with large debt service
requirements. Lenders are quick to maneuver. Rival chains can
step in and immediately improve their current market penetration
through mergers and acquisitions. Sorting out franchisor and franchisee
ongoing legal responsibilities is going to demand forbearance
and is not for the faint at heart. Franchisees feel the pain,
too. Large franchisee organizations, multi-unit operators, will
seek bankruptcy protection, an action guaranteed to throw franchisors
into a tizzy. Do the "Ors" stand with their "Ees" or force a sell
off of locations to new franchisee operators?
- Shuttered units become a daily dirge for big and small, old
and new systems. The problem crosses all spheres of franchising.
This adverse economic consequence can create golden opportunities
for other chains. Fair to good locations prove to be a boon and
abet stronger operators to expand in markets. Site cost reductions
are in play. Landlords are forced to haggle over lease terms.
Local municipalities suddenly become welcoming allies to franchising
as the prospect of renewed business, new jobs, and tax revenues
benefit community interests.
- Compelled by economic descent, franchisors resolve to review
closely international development plans and to adjust foreign
expansion targets. Unit closures overseas continue with under-performing
locations impacting expansion in certain high profile political
and social market areas. Expect to see more foreign governmental
agencies initiate closer review of contracts and franchisee/franchisor
relationships within their jurisdiction. It is requisite that
franchisors fulfill their contractual agreement to the letter
as foreign administration officials record a growing number of
international franchisee complaints.
Things that we felt absolutely sure about before 9-11 are now,
for sure, not absolute. We are discovering exactly what it means
to live for today, dream of tomorrow, and learn truth from the past.
A franchise decision-maker reminded us that without freedom, there
could be no such thing as franchising. The executive stated, "Freedom
is what makes franchising work; freedom of choice and an intelligent
use of a person's experience for the purpose of another's progress
and success are the underpinnings of world franchising."