5 Challenges Facing Franchisors in 2023

Before we discuss the 5 Challenges, 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, up 32,819 franchise units in the U.S. [compellation analysis]
There are approximately 4,000 franchisors in the U.S. sharing in the growth of 32,819 predicted unit growth or an average of 8.2 new sales per franchisor in 2022.  However, the average is misleading since of the 90% 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 help.  A number of franchise fast food locations have to close certain days a week as people simply will not show up for work.  Remote workers are not longer a fad, they are a reality.  This is why the business and personal services now make up 28% or over 221 thousand 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

In addition to inflation, franchise prospect leads are virtually useless.  10 years ago, you could expect to sell franchises for every 50 leads with a good salesperson and leads were under $25.  Lead providers a proud today to say it is 1 in 150 leads and leads of any quality are at least $30 to $75.  This has caused the franchise brokers to demand more commission per sale as it can cost them $4,500 to $11,250 per close in marketing expense, not to mention hours of senseless prospecting.  What is your strategy to get better quality buyers for your franchise?

CHALLENGE FOUR: OUTDATED MARKET PULL.

The customer sets the value of a product or service.  The escalation in Franchise Fees will soon be seen by buyers as a barrier to entry.  According to Steven Covey, “If you don’t change what you are doing, you will keep getting what you been getting.”  The franchise industry has got to reset or the growth may come to a quick end.  Are you experiencing lower franchise sales year over year?

CHALLENGE FIVE:  INNOVATION

With agility, innovation, ability to navigate hostile waters, franchisors, in the 21st century must face these facts.  At my company, 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 Refresh is helping small existing franchisors reinvent themselves and prosper in difficult times – we see opportunity, not danger!  You should take advantage of our FREE One Hour Coaching Call – A $500 Value.  A recent franchisor client said, “Where have you been?  I learned more in the last hour with your than from my other consultants in the last year!”

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Dr. Needham is President and Senior Business Advisor at CFS and Director of Education at NFA. He personally has over 34 years of experience in business and franchise development.  He is an innovator and thought leader.   

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