Since the economic crisis of 2008 and the continued rise of ecommerce and mobile technology, massive change has been taking place in the business world, change that the franchise industry must adapt to if it to continue to thrive and grow. We take a look at seven of this year’s most significant trends and how they may affect you.
Trend 1: The rise of the Part Time Economy
The world of work has changed several times in my lifetime. When I was a boy, fathers went out to work and mothers stayed home to care for the children. When I got married, interest rates were so high that if you wanted your own house – and who didn’t? – both partners had to go out to work.
Today, home ownership is but a dream for many young couples. Already saddled with student-loan debt, they are finding that even full-time “real” jobs don’t provide them with enough income to unsaddle themselves and get ahead. They need more income – and for that, many are turning to part-time or casual franchises. A client of ours who operates an after-school reading tuition franchise for teachers found herself deluged with calls. The Coffee Guy recently sold to Australia’s Retail Food Group while Australian based mobile franchise Cafe2U entered the New Zealand market.
Trend 2: The rise of the Mobile Economy
The Coffee Guy and Cafe2U may be part-time opportunities for some, but to many the attraction of these franchises are the opportunity not only to make a full-time income but also to get started without a lot of capital, something made possible by the mobile nature of the businesses. Instead of committing themselves to a long-term lease in expensively fitted-out café premises, franchisees are able to start a coffee business for the price of a van and a coffee machine.
All sorts of industries are being shaken up by the Mobile Revolution. In the United Kingdom, mobile tyre seller and installer eTyres has built a network of more than 80 franchisees and captured a chunk of the market from traditional tyre chain operators like Firestone. The reason? For customers, eTyres offers the benefits of greater convenience and lower prices because they come to customers at home or work and can offer greater discounts because of their lower overhead structure. For franchisees, eTyres offers lower start-up and overhead costs because all franchisees need is a van and much lower equipment and stock levels than the traditional tyre dealers.
Trend 3: More legislation of franchising
Australia has had yet another review of its franchising code of conduct, the fifth since 2006, and one of the best recommendations in my view is that no further reviews are held for five years! Needless to say, the review also recommended more legislation, not less.
In Great Britain, which like New Zealand currently has no specific franchise legislation, there has been increasing pressure to introduce legislation. Even though that pressure has eased in recent years in New Zealand, proposed new legislation in the form of part 6A of the Employment
Relations Amendment Bill has been seen to threaten the fundamental principle of franchising that the franchisor and franchisee are independent parties, a case which has certain parallels with a law passed in California and five other states deeming a franchisor to be a franchisee’s “employer” in certain circumstances.
Where will it end? Well, unfortunately it won’t. But countries such as Australia and the United States have shown that legislation need not be any impediment to the vigour of franchising.
Trend 4: The rise of Freedom Franchises
Also known by freedom franchise champion Body Fit Boot Camp as “anti-franchise franchises”, freedom franchises offer many of the benefits of franchising without crushing the individuality of franchisees – to some extent anyway.
You’ll find more examples in our article “How to build a franchise that doesn't look like a franchise”.
Trend 5: Refranchising
Refranchising is the strategy of selling off company-owned stores to franchisees or launching into
franchising to expand an existing chain, something that Burger King New Zealand has just embarked on. Burger King’s United States parent has been using the same strategy, as have other well-known franchises such as Denny's, Taco Bell, KFC, Pizza Hut, Sizzler and Thrifty Car Rentals. Even though capital markets have been loosening up, we expect this trend to continue as chains here and overseas look to increase revenue, reduce debt and overheads, increase access to capital for facility and equipment upgrades, and improve same-store performance.
Trend 6: Multiple Unit Ownership
The reason refranchising can improve same-store performance is that the franchisees will generally outperform company managers because they have skin in the game. Multiple unit ownership – the practice of selling more than one franchise to one franchisee – goes against this, so why are so many franchises, especially in the United States where one franchisee may own hundreds of franchises, doing it? Simple answer: Rapid expansion. I can see why franchisors might want to offer additional franchises to franchisees who’ve proven themselves with their first franchise business, but there’s got to be a limit otherwise they risk compromised performance and too much power in the hands of a few franchisees. Nevertheless, I see the trend continuing as franchisors go for growth and market dominance at any cost.
Trend 7: Franchising/eCommerce integration
At the moment there’s a tension between franchising, with total sales of $1 trillion worldwide, and ecommerce, which has just hit the $1 trillion mark. What’s more, ecommerce did it in a far shorter time than franchising, indicating that it is growing much faster. Could this be a threat to franchising? Only if franchising proves unable to shift its mindset and move with the times, viewing ecommerce as an opportunity rather than a threat. We’ve discussed this in other articles.