Franchising in 2024: Franchisees Give Thoughts and Projections

By many accounts, 2024 looks to be a promising year for multi-unit franchisees, but there are challenges ahead. For example, inflation and high labor costs are expected to persist. But multi-unit operators can adapt and be well-positioned for success. Now is the time to prepare your business for the challenges and opportunities in the coming year.

We asked members of the Multi-Unit Franchising Conference’s Board of Directors how they are feeling about the future and how they plan to approach business in 2024. Greg Thomas is president of LSGF Management and a franchisee of several brands, including Great Clips and Smoothie King. 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.

For part two in our series, we asked these franchise veterans to give us their thoughts.

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

Thomas: 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.

Lutfi: 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? 

Thomas: 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’s 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.

Lutfi: 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?              

Thomas: 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. 

Lutfi: 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.