Recession Predictions for Franchising in 2023

So what are current trends telling us about the impact of a recession on franchising in the months and year ahead? And what are your thoughts?

FranConnect’s franchise sales data for the Q3 2022, compared with the same quarter in 2021, supports the likelihood that we are entering a similar cycle to what we encountered during the Great Recession, with a marked decline in leads and sales. Throughout 2021 we ended up seeing a decline in leads of 22%, but also saw franchise sales actually increase by 12% YOY. The bottom line: fewer tire kickers, but more qualified buyers.

However, as you can see in the following data, fear, doubt, and uncertainty are momentarily creeping in, and deals are being pushed back (though not lost, in my opinion). People are waiting on the sidelines to see what shakes out in terms of the potential for a recession with ongoing labor shortages, and affected by war and a seemingly never-ending health crisis that is likely to raise its ugly head again through the winter months ahead.

According to FranConnect’s latest franchise sales index data, the current outlook is showing some reason for concern:

• Q3 2021 total leads: 314,430
• Q3 2022 total leads: 195,213
• YOY Change: −119,217; −37.92%

• Q3 2021 closed deals: 3,265
• Q3 2022 closed deals: 2,053
• YOY Change: −1,212; −37.12%

On the other hand, franchisors appear to be more bullish in regard to franchise systemwide sales in the year ahead, as you can see here:

• 33% of franchisors anticipate a sales increase of 1% to 5% in 2023
• 30% of franchisors anticipate sales up 6% to 10% in 2023
• 20% anticipate their franchisees’ revenues will increase by 11%
• Only 6% in total believe that they will be negative between 1% and 5%
• And 6% believe that they will be negative between 6% and 10%

The smart money is on a brief recession over two quarters in 2023, and we’ll be stronger than ever. That said, there is no such thing as a rich economist! What are you currently experiencing and what are your predictions on the impact of a recession?

This article first appeared on FranConnect’s website and is used here with permission.

Keith Gerson, President of Franchise Operations at FranConnect, has more than 45 years of executive-level expertise creating and building leading franchise systems. His most recent book is “The Franchise Book of Mentors.” To learn more, visit franconnect.com.