Franchisors' Problem in 2022 Is Opening the Units They Sold in 2021
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Franchisors' Problem in 2022 Is Opening the Units They Sold in 2021

Franchisors' Problem in 2022 Is Opening the Units They Sold in 2021

After an impressive year of development, franchising is facing a new challenge in 2022. Although many units have been sold, an astounding number have not opened. There is a significant and surprising backlog of new owners—companies and individuals alike—itching to get going, but many franchisors have sold more units than they can open. Franchise development isn’t truly growth until the doors are open.

How we got here

Franchising survived the chaos of 2020 amid quarantines and shutdowns, permanent closures, and adjusting to the uncertainty about what the future held. In many ways, the first half of 2020 shocked the industry into a new reality and prompted those in franchising to up their game. Operationally, this meant franchisors had to acclimate quickly, although in many cases that meant a bit of scrambling. Very few, if any at all, were set up for the new normal.

For the brands that survived, or even thrived, that experience prepared them well for 2021. Franchise development took off with leaner, more productive teams catering to a whole new market of buyers impressed by what they saw. The “Great Resignation” also led to a dramatically changed job market, creating a new pool of potential franchise buyers.

Simultaneously, the world of private equity took a more sophisticated approach to franchising and began investing substantially more money into the sector. Not only were PE firms investing in brands, many well-funded multi-unit entities also began looking to break into franchising as franchisees. Franchise development teams were suddenly awash in leads and competition. Those who successfully refined their sales process sold thousands of units to drive tremendous growth in 2021—at least in terms of a number on paper.

Mounting pressures

So why aren’t these new units opening—despite the extraordinary enthusiasm, solid funding, and experienced operators and franchisors? On one side, there are pressures from the Covid-19 pandemic. More than 2 years in, businesses are still having to evolve with every new regulation and requirement for the health and safety of customers and staff, affecting the way they operate.

Exerting pressure from another side we have the crippling factor of a massive labor shortage. According to a survey from The Harris Poll commissioned by staffing franchise Express Employment Professionals, 42% of U.S. companies said employee turnover increased in 2021, costing them an average of $26,511 in lost productivity and recruiting. One in five companies (21%) said the price tag was $50,000 or more.

So, with the current landscape making it difficult enough for existing businesses to run smoothly, how can anyone expect a new one to even get its doors open?

How to get started

The operational challenges franchise businesses face today are unique. By having a very professionalized, technology-focused opening process—not just a checklist on a piece of paper—operations teams have been able to open units and do it more efficiently than ever before. The right solution can manage communication between the franchisor, field team, and franchisee, avoiding delays by quickly resolving issues and keeping the process moving forward—all while sharing best practices and critical knowledge.

To begin your transition toward a technology-based opening strategy, here are four steps to follow.

1. Assess your specific needs.?As we consider the big problem of getting new locations open amid the backlog, technology can streamline the process—from franchisee onboarding through construction, training, and opening day, reducing the number of days to the first dollar. Brands should review what technology, if any, they already have to support this function and then determine what’s working and what’s not, as well as what their pain points are.

2. Hire the right person (or people) to lead the initiative.?Franchises just embarking on this journey may not have the right person or team in place to lead an ambitious technology rollout. If that’s the case, find them! It’s vital to have a strong leader experienced in deploying technology across a franchise system. Keep in mind that the right technology can alleviate the need for extensive human capital because it can create a well-run and well-orchestrated process from beginning to end.

3. Find a technology partner that specializes in franchising.?Franchises have unique business needs, so it’s imperative they use a technology platform designed for the business model. The IFA?is one resource to consider using to find a partner. There also are several rankings of top franchise suppliers available online.

4. Franchisee engagement is key.?One of the biggest hurdles franchisors encounter when deploying new technology is franchisee buy-in. When a franchisor is attempting to manage an aggressive pipeline of openings, an unengaged operator can derail the train. That is why many franchise brands opt for a slow, calculated rollout, first testing technology using a corporate location or tapping their franchise advisory council for input and assistance with the testing phase. Franchisors also should ensure that all relevant corporate support staff and field teams are trained in the tech, and that they are ready to serve as both advocates for it and experts in it.

What’s next?

Franchise brands of all sizes have weathered the storms of the past 2 years, demonstrating the continued strength of the business model and the ability to be a driver of economic growth. Now is the time to seek out technology that can offer a clearer picture not only of functions like field operations and owner engagement, but also of the franchise system in its entirety. The continuing challenges franchises face will not be going anywhere anytime soon, but the industry has the tools available to survive them.

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.

Published: November 7th, 2022

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