Forecasting 2024: Conference board members predict the year ahead

As the variable winds of 2024 whip through the franchise marketplace, multi-unit operators find themselves between concerns about an economic slowdown and the allure of growth and opportunity. While some forecasters predict choppy waters ahead, savvy multi-unit franchisees know they hold a unique advantage: the power to craft customer experiences and value propositions that other independent businesses simply can't match.

To gain insight into how multi-unit franchisees can navigate the year's shifting conditions, we tapped into the wisdom of the Multi-Unit Franchising Conference's Board of Directors. They are seasoned franchising veterans who have faced all kinds of challenges during their careers and continue to thrive.

Some common themes emerged, including economic uncertainty, labor market tightness, and supply chain-related issues. They also pointed out that tried and true strategies, such as embracing operational excellence, prioritizing customer experience, and leveraging innovation, can help multi-unit operators not only survive but thrive in the dynamic landscape of 2024.

Here's a deeper dive into their thoughts and strategies for the year ahead:

Aziz Hashim 

Managing partner of NRD Capital. The company's franchise portfolio includes well-known brands Ruby Tuesday and Frisch's Big Boy as well as fast-growing brands Fuzzys Taco Shop and The Captain's Boil.

What is your vision for the economy, the franchise marketplace, and your own business in 2024?

The economy will be under pressure due to the continuing impacts of rampant inflation, high interest rates, and declining consumer discretionary spending capacity. Years of easy money policy has created a number of asset bubbles which will now have to reset with the new reality of normalized cost of capital.

The franchise marketplace has also been affected by the aforementioned stresses. In the recent past, franchise resale transactions have benefited from lower interest rates that are now resetting, causing a material impact on profitability. At the same time, many operators have raised their retail prices to record levels to counteract inflation. Those price increases are causing alarming reductions in traffic count—the lifeblood of retail operations. Lastly, development costs to open franchises have reached peak levels caused by materials, equipment, and labor inflation greatly reducing the unit economic profitability and, therefore, the ROI for many businesses.

At NRD, we have taken the view that the unit economic model of franchising, particularly in the restaurant space, must be disrupted and reset. Franchisees deserve an opportunity to receive a compelling return on invested capital for the risk they take in developing franchise units. We have created a new portfolio of franchise brands under our Experiential Brands platform, such as The Original Hot Chicken, Flametown Burgers, and several more, that focus solely on franchisee profitability. This year, we will begin offering these brands to franchisees.

In what ways do you think this will impact multi-unit franchisees and their business operations in the coming year?

Franchisees will have to come to grips with the new economic realities of inflation and lower consumer tolerance for high prices. Underperforming units, which have long been absorbed by multi-unit franchisees as an inevitable consequence of owning a larger portfolio of units, will have to be dealt with differently. Development agreements that were signed under very different economic circumstances will have to be renegotiated. The notion of opening new units at considerably higher costs and lower margins will be untenable for some brands.

What are some ways multi-unit franchisees can prepare their businesses for 2024?

Multi-unit franchisees should take a hard look at their portfolios, particularly at underperforming units, and “prune the tree.” As difficult as that may be, it is the key to long-term success. They should also look at development agreements, particularly with brands that do not offer attractive unit-level economics, and renegotiate with brands regarding the size and perhaps schedule of new development. Finally, multi-unit franchisees should look for new opportunities that are risk managed, such as lower start-up costs, quicker returns of invested capital, and lower labor requirements. In other words, it's time for a complete portfolio review and reset to get ready for the next phase of the economic cycle.

Mitch Cohen 

Multi-unit franchisee with multiple Sola Salon Studios and Jersey Mike's Subs locations.

What is your vision for the economy, the franchise marketplace, and your own business in 2024?

I am looking towards 2024 with an optimistic eye. If the Fed starts to lower the interest rate, I think the public will have more confidence in spending on our businesses and also investing in franchise businesses. For our development, we are growing at the same pace, two to three units a year.

In what ways do you think this will impact multi-unit franchisees and their business operations in the coming year?

 If access to capital is available, I believe we will see growth in existing MUO and single-unit operators making the jump to multi-unit and multi-brand.

What are some ways multi-unit franchisees can prepare their businesses for 2024?

I think no matter what business you have, it's all about the people. I think hiring and retaining great people will allow all of us to grow. We also should be keeping an eye on the supply chain and availability of equipment to build new locations. This is certainly not last on my list, but we need to stay informed about any local, state, or federal legislation that might be in the works that could affect our franchising business model. We should make sure we work with each area of the government to provide insight into these policies to protect the model.

Karim Khoja 

The founder of Bravo Hospitality Group, a multi-unit franchisee of Comfort Suites and Four Points by Sheraton.

What is your vision for the economy, the franchise marketplace, and your own business in 2024?

I think the economy will be fine, and a soft landing will happen as the Fed has played it perfectly so far. The franchise marketplace is great and robust. I see a lot of unique non-QSR franchise opportunities. My franchised hotels should do better in 2024 due to pent-up demand from business travelers. Companies are finally starting to book face-to-face conventions and out-of-town meetings. The past two years were a big struggle.

In what ways do you think this will impact multi-unit franchisees and their business operations in the coming year?

I feel business is going to be great for all multi-unit franchisees. I do believe top lines will be very healthy. What I can't predict is the labor force and how we have to solve the labor shortage, especially for all QSRs. Also, costs have gone up too much and expenses have gone up too much. I don't see a return back to old costs pre-Covid. This is going to be a tough act for franchisees to raise prices carefully.

What are some ways multi-unit franchisees can prepare their businesses for 2024?

Just be organized and be on the top of your game. Franchisees that are in the A-game league will be winners. Consumers have too many choices now—more than ever—and the franchisees that provide the best service will end up being winners.

Robert Branca Jr. 

President, general counsel, and director of development for Branded Management Group and Branded Realty Group, and he is a franchisee with Dunkin', RimTyme, and more.

What is your vision for the economy, the franchise marketplace, and your own business in 2024?

While we seem to be in unprecedented times, we have seen other economic cycles where things seemed different but each presented opportunities. The one thing that continued to deliver against these opportunities was sticking to the same simple fiscal disciplines that brought you to where you are.

The math never changes. I actually reflected on this after the passing of Charlie Munger, Warren Buffet's business partner. Munger was a man with a knack for distilling complex matters down to simple aphorisms that remained true decade after decade.

Another constant is the waxing and waning of the regulatory state, which is in full wax mode right now. What is different now is that franchising is a loudly stated target of the government. This focus is not just on wrongdoing but on the incredible business model itself. That is new and extremely troubling.

In what ways do you think this will impact multi-unit franchisees and their business operations in the coming year?

We will see continued consolidation, both of franchisors and franchisees, as those who can raise capital in these challenging times will take their share. Only more sophisticated players with greater resources and the ability to deal with the torrent of regulatory assaults on their businesses will be able to operate profitably. One hopes that they will become even more engaged in Washington, D.C., and with their local governments through our excellent trade associations or on their own. Success in protecting the franchise model is critical.

Our Multi-Unit Franchising Conference has been the prime place to witness the growth of multi-unit franchisees. Every year, we see the goals that they set the year before be realized or exceeded. We have seen “umbrella” franchisors form and grow. Some are a collection of brands in the same sector while others span sectors, each trying to attract multi-unit franchisees to take up as many of the brands that they offer as possible. That certainly can facilitate expansion because you are dealing with the same players across all of the brands and often using the same franchise and territory agreements.

What are some ways multi-unit franchisees can prepare their businesses for 2024?

Multi-unit franchisees can't tell the future, but they can work hard to manage their risk. No one can eliminate risk and still grow returns, but you can hedge against interest rates, renegotiate leases and loan terms, form strategic alliances, and diversify and try to own your real estate if that fits in your wheelhouse.

I find it instructive to think of overall business planning like a casino: Players may all be gambling, but the house is just doing math—continuously. Try to be the house.

Rocco Fiorentino 

President and CEO of Benetrends Financial and a director and board member for Swiss Farm Stores and Saxbys Coffee.

What is your vision for the economy, the franchise marketplace, and your own business in 2024?

My vision for the economy is that we certainly have challenges going into 2024. As they say, it's an election year. However, I see the opportunity for growth in the franchise space as independent businesses will continue to struggle with brand recognition, purchasing power, and advertising hurdles, leaving the market to the larger brands and the strength in numbers.

In what ways do you think this will impact multi-unit franchisees and their business operations in the coming year?

 Multi-unit franchisees will certainly have the upper hand in creating a customer experience and consumer value that independents will not be able to match.

What are some ways multi-unit franchisees can prepare their businesses for 2024?

My thoughts are to hire and retain the best people and provide the best experience. Treat them as they are the best people, and they can deliver the best experience. That wins the game every time!

Greg Thomas 

President of LSGF Management and a franchisee of several brands, including Great Clips and Smoothie King.

What is your vision for the economy, the franchise marketplace, and your own business in 2024?

Economies grow and contract. It's a natural characteristic. The U.S. economy has had several years of growth coming out of Covid, and I think 2024 will show continued growth. But not all is healthy in the franchise world. Inflation, especially construction costs, are skyrocketing. Interest rates are up. The total cost of building and opening a new store is almost double what it was just a few years ago. This massive up-front investment is not fully reflected in the current retail prices. And with consumers becoming more and more frugal with their money, I'm not sure if retailers will be able to simply raise their prices so freely in 2024. I believe profit margins are going to shrink substantially in 2024, especially for those building new stores.

In what ways do you think this will impact multi-unit franchisees and their business operations in the coming year?

Multi-unit franchisees will likely switch their focus to growing through acquisition rather than new builds. I can say with full certainty that my company won't be building any new Smoothie Kings in 2024–25. It's just too expensive to build. Plus, the interest rates are prohibitive. On the flip side, there are a lot of older multi-unit franchisees who are simply burned out from the Covid stress of the past few years. Their margins have shrunk, their energy is gone, and their leases are almost termed out. The operators who no longer have debt will be looking to simply sell and retire. I believe resales will be more plentiful and new builds too costly. It'll be a seismic shift.

What are some ways multi-unit franchisees can prepare their businesses for 2024?

Pay down debt. Start hoarding cash. And then wait for resale opportunities. Looking ahead, a recession will occur sometime down the road. I definitely don't want to have much debt (especially at 10% interest rates) when that happens. Instead, I want to be sitting on a ton of cash, so I can go out and bottom feed. 

Tony Lutfi 

Has a long history in franchising that includes Arby's, Jack in the Box, Church's Texas Chicken, Long John Silver's, TGI Fridays, Sizzler, Little Caesars Pizza, and Sears Appliance and Outlet Stores.

What is your vision for the economy, the franchise marketplace, and your own business in 2024?

The economy will remain strong, and we are likely to avoid a hard landing. That's the prediction of Bank of America and many other reliable economists. Consumers are employed and are making more money than they have before although the cost of living continues to increase.

Debt is likely to escalate because people are charging more and often living beyond their means. It is good for the economy in the short term but will have long-term consequences.

Meanwhile, businesses are having to take on additional burdens courtesy of the government, and the national debt is projected to increase by $2.5 trillion in the next two years.

In what ways do you think this will impact multi-unit franchisees and their business operations in the coming year?

Inflation is not tamed, and it will continue to impact goods but mainly be driven by labor cost increases. Technology and innovation are the only way we can overcome the labor challenges. There will be more machines doing the work of individuals. AI will continue to expand and play more of a role.

What are some ways multi-unit franchisees can prepare their businesses for 2024?

Don't be an early adapter and pay the high cost of evolution. Also, don't be the very last to adapt. Avoid being left behind.

David Ostrowe

President and CEO of O&M Restaurant Group and operates 14 Burger Kings, 6 Blaze Pizzas, and 18 Taco Bells.

What is your vision for the economy, the franchise marketplace, and your own business in 2024?

As we look ahead to 2024, I anticipate several economic challenges that will significantly impact our business and the broader franchise marketplace. We can expect a continual increase in labor costs, interest rates, commodity prices, utilities, and insurance. Additionally, heightened regulations from the NLRB will likely add to our challenges.

In response, it's crucial for us to adapt and strategize accordingly. Our focus should be on enhancing operational efficiency and integrating technological advancements to streamline our processes. This approach is essential across all our brands with each requiring a tailored strategy to navigate these economic shifts effectively.

The coming year will demand resilience, adaptability, and strategic foresight from us. We must be proactive and innovative in our approach to ensure continued growth and success in a challenging economic landscape.

In what ways do you think this will impact multi-unit franchisees and their business operations in the coming year?

I would break it down this way:

• Operational costs: The rise in labor, commodities, utilities, and insurance will significantly increase operational costs. This means tighter margins, necessitating a sharper focus on cost management and operational efficiency.
• Staffing challenges: With higher labor costs, attracting and retaining quality staff might become more challenging. You'll need to balance wage increases with productivity improvements.
• Capital expenditure and expansion plans: Rising interest rates will make financing more expensive. This could slow down expansion plans or refurbishments, requiring more strategic capital allocation.
• Menu and service adaptation: Cost fluctuations may necessitate menu adjustments, perhaps focusing more on cost-effective but popular items to maintain profit margins.
• Technology and automation: To counterbalance rising operational costs, investing in technology and automation for order taking, kitchen operations, and even marketing can drive efficiencies and reduce labor dependence.
• Regulatory compliance: Increased regulations, especially from bodies like the NLRB, mean you'll have to be vigilant about compliance, which might require additional resources.
• Marketing and customer loyalty: In tighter economic times, maintaining customer loyalty becomes crucial. Effective marketing and community involvement can help in retaining your customer base.
• Supply chain management: With commodity price hikes, managing supply chains efficiently to avoid disruptions and extra costs will be critical.
• Diverse revenue streams: Diversifying revenue streams, such as incorporating delivery services or exploring new market segments, could help mitigate risks associated with economic downturns.
• Local market sensitivity: If you operate across multiple states, staying attuned to local economic conditions. Adapting your strategy accordingly will be important.

How can multi-unit franchisees prepare their businesses for 2024?

Be nimble and learn to say “no.” Wear your seatbelt and get ready for a pullback across the board.

Gary Robins

Owns and operates 65 Supercuts throughout Pennsylvania, New Jersey, Maryland, and Delaware.

What is your vision for the economy, the franchise marketplace, and your own business in 2024?

Uncertain. There are many factors to consider. Many favor continued growth and others point to a significant downturn. Looking at all the factors, my thinking is that there will be a downturn in consumer spending, but for our business—health and beauty—the downturn will be less significant than in other areas.

In what ways do you think this will impact multi-unit franchisees and their business operations in the coming year?

I think you will see reduced spending on technology, marketing, and capital expenditures.

How can multi-unit franchisees prepare their businesses for 2024?

Most importantly, you need a growth plan to navigate the uncertainty or downturn.

Jesse Keyser

Operates multiple Sport Clips, Oxi Fresh Carpet Cleaning, Ideal Image, and Med Spa locations throughout five states.

What is your vision for the economy, the franchise marketplace, and your own business in 2024?

Keyser: It's going to slow down in the lower and middle levels of disposable income. Watch higher income take off.

In what ways do you think this will impact multi-unit franchisees and their business operations in the coming year?

Keyser: Until they figure out how to build the locations cheaper, you will see more acquisitions than new development of locations.

How can multi-unit franchisees prepare their businesses for 2024?

Keyser: Save cash, so when you go to finance, you are not financing as much and can have good cash flow numbers. 

Grant Simon 

Co-founder and CEO of LSGF Management where he oversees more than 150 T-Mobile, Great Clips, and Smoothie King locations.

What is your vision for the economy, the franchise marketplace, and your own business in 2024?

The economy will most likely be difficult for business through at least the first half of 2024 and then start easing. Increased government compliance and regulation as well as a higher interest rate environment will push more money toward franchises. I expect to grow my business in 2024.

In what ways do you think this will impact multi-unit franchisees and their business operations in the coming year?

I expect labor and rents to continue moving up while price increases will taper off, putting pressure on margins. Growth could be impeded by higher interest rates and accelerating construction costs.

How can multi-unit franchisees prepare their businesses for 2024?

Look toward efficiencies in business rather than relying on future price increases like the last couple of years. Have a robust labor plan. Plan for capital costs factoring in higher interest and construction costs.

John Hotchkiss

Operates 46 Little Caesars Pizza and three Firehouse Subs, and he is involved in real estate development in Texas and Louisiana.

What is your vision for the economy, the franchise marketplace, and your own business in 2024?

I think there is good news for all of them in 2024. And I think good news can mean not much damage to the economy, and as always, franchisees will find a way to at least stay even or increase. We opened a store today and had record sales, and all our sales are up a lot while food costs remain pretty good.

In what ways do you think this will impact multi-unit franchisees and their business operations in the coming year?

I think, mostly, all the good brands will do better, and the bad do worse.

How can multi-unit franchisees prepare their businesses for 2024?

We use mostly cash to grow and stay away from the 8% loan rates. We're glad we did. It's also a good opportunity to buy some assets like real estate, and be sure to have the best culture for your team. Be grateful and share the wealth with the most important people around you.

Paul Booth 

The president of Concentric Brands, which owns and operates Ace Hardware locations.

What is your vision for the economy, the franchise marketplace, and your own business in 2024?

I think the economy will still be evolving from high interest rates, inflation, and student loan payments resuming. We should prepare for a mild slowdown. However, I remain cautiously optimistic. One of the things I am doing to pivot my business and to diversify income streams is to expand my B2B customer base. I want to continue to scale with the right brands and with the right capital partners.

In what ways do you think this will impact multi-unit franchisees and their business operations in the coming year?

I think the numerous dynamics in the economy will affect various businesses differently. In some industries, we have already seen a cooling of record pandemic levels. In a dynamic and ever-changing environment, franchisees will have to find new and creative ways to drive top sales through diversification and new lines of business as well as finding ways to directly connect with the consumer.

How can multi-unit franchisees prepare their businesses for 2024?

I would say multi-unit franchisees can prepare their businesses by evaluating their people plans, assessing financials and additional capital needs, and understanding their brands and their customers.

Charles Keyser 

A multi-unit franchisee of Sport Clips, Oxi Fresh Carpet Cleaning, and Ideal Image.

What is your vision for the economy, the franchise marketplace, and your own business in 2024?

I believe on a macro level that the rich will continue to get richer, and the poor will continue to get poorer. That's how our monetary system works mainly due to an asset/investment gap rather than a wage gap. Consumer debt went up almost a trillion dollars from Q2 to Q3 last year, and that's material.

However, I believe 2024 will become deflationary along with interest rates coming down, etc. That will keep consumer demand strong. I think this will be good for the franchise space. I see construction costs still a little higher due to the lack of labor force, and that could affect the ask/bid of M&A. It will be interesting to see where evaluations settle in 2024.

As far as my businesses, I think 2024 could be a banner year. Recruitment efforts are working well, and we have strong leaders in place with true buy-in. Expansion plans are in motion. The cost of capital shouldn't be much of a factor for the deals we have in place.

In what ways do you think this will impact multi-unit franchisees and their business operations in the coming year?

I think multi-unit franchisees have a couple of key things to think about in 2024. One in particular is current debt. Many multi-unit franchisees took advantage of low interest rates coming out of the pandemic for aggressive M&A. In April 2020, the real rate of interest (nominal rate minus inflation = real rate interest) was -.40% or close to negative half a percent. This is mind-blowing because that means you profited almost $5,000 a year for every million you borrowed—just for borrowing!

Interest rates from the banks were low. It was a good time to borrow and operators did, leading to massive growth. Depending on the cap structure, we are entering a stage where debts are maturing and need restructuring. Margins weren't maintained through late ‘21, ‘22, and ‘23 as projected in the beginning, which will become problematic for franchisees with large debts and low cash reserves. This is where we could see an alignment of the ask/bid in the future. 

What are some ways multi-unit franchisees can prepare their businesses for 2024?

I think 2024 is going to be the year of base hits for most and swinging for the fences for a few. I think it will be a necessary year to get back to basics. Many franchisees grow quickly and need to refine some things internally. I believe 2024 will prove to be a year that the “better” and the “best” will come out well while the “poor” and even “good” operations run real risk of setbacks or worse. To prepare for 2024, I'd spend time making sure the company keeps the main thing the main thing: people, products, and service.

Sam Askar 

A multi-unit operator with Church's Texas Chicken and Dunkin' locations.

What is your vision for the economy, the franchise marketplace, and your own business in 2024?

Our belief is the economy will slump in 2024. Our brands are value-driven brands. Value-driven brands typically perform better in bad economic times. We must execute well in our value brands to outperform in the market.

In what ways do you think this will impact multi-unit franchisees and their business operations in the coming year?

Multi-unit franchisees that are overleveraged could be in a tough situation. High costs already make it tough to manage profitability, so servicing debt may become a problem.

What are some ways multi-unit franchisees can prepare their businesses for 2024?

Reestablishing a new norm in this post-pandemic world will be important. This year may be an opportunity to recruit better talent. The focus should be on staffing. The quality of the team and knowing who your team is could give you the opportunity to attract customers from your competition. To be successful, it will take a combination of shedding underperforming assets, strengthening your team, and consolidating your debt.

Nathan Garn

Operates a number of Little Caesars Pizza, Jamba, Wingstop, Dunkin', Jersey Mike's Subs, Cinnabon, Red Robin, and Sizzler locations.

What is your vision for the economy, the franchise marketplace, and your own business in 2024?

I'm hopeful but not necessarily optimistic that the Federal Reserve can stick a soft landing. I still believe that a recession is the most likely outcome. In the franchise marketplace, consumers are generally going to feel pinched. I expect interest rates to remain elevated compared to recent history. Also, rent and mortgage payments as a percentage of income will likely remain high. I expect consumers to trade down into more cost-effective options. We believe our business is well situated because we operate value-oriented brands.

In what ways do you think this will impact multi-unit franchisees and their business operations in the coming year?

I think debt will remain expensive, and therefore, operators will likely be somewhat more capital constrained. Operators will likely also need to generally lean into value offerings.

What are some ways multi-unit franchisees can prepare their businesses for 2024?

Be thoughtful about managing major capital investments, lean into investing in their team to better service guests, and increase the value proposition to the guest.

Sean Falk

A longtime franchisee who currently operates Scenthound locations.

What is your vision for the economy, the franchise marketplace, and your own business in 2024?

I feel like the economy as a whole is going to be pretty tough in 2024. We have a lot of credit card debt and national debt. We've been spending like crazy for three to four years, and something has to give. A presidential election that will certainly get contentious is not going to help. Discretionary spending could become a real issue. Food in franchising probably won't suffer too badly, but some higher-level service needs could be postponed until the economy improves. I anticipate our business will continue to grow, albeit a little slower than we hoped.

In what ways do you think this will impact multi-unit franchisees and their business operations in the coming year?

Everyone has been so focused on their business for years now because the margins have really deteriorated. The harder times will require additional focus and creative ways to save revenue. The cost of goods in food, especially, has to stabilize for owners to anticipate and forecast their costs and pricing. Labor will also continue being a costly line item on the profit and loss statement as wages try to catch up with the inflation in pricing that has happened for the past four years.

What are some ways multi-unit franchisees can prepare their businesses for 2024?

Have a strategy in advance. It will be too late to address when you are in the middle of a crisis. Make decisions that treat the symptoms now, but prepare yourself for the growth that should come in mid to late 2025. If you can survive now, you will be able to flourish faster and ahead of your peers later.