The Right Economy for Franchising

Last week we gave you a "sneak preview" of the 2010 economic forecast for franchising. This week we break down those numbers in terms of revenue, units, and employment; and dig more deeply into the reasons 2010 is a good time to get into franchising.

1) Franchising by the Numbers

The 2010 Franchised Business Economic Outlook, a report commissioned by the International Franchise Association and conducted by PricewaterhouseCoopers, forecasts the following for 2010:

  • Economic output. Overall economic output (the gross value of goods and services) produced by franchised businesses will grow 2.8 percent to $868.3 billion, an increase of $23.6 billion over 2009. All of the 10 franchise business sectors defined in the report are expected to see economic growth in 2010. The largest percentage increases are expected in personal services (4.4 percent), quick service restaurants (3.2 percent), and businesses services (2.6 percent).
  • Units. The number of franchised units is forecasted to increase from 883,292 to 901,093, a net gain of about 18,000, or 2 percent. The largest percentage increases in units are expected in quick service restaurants (3.1 percent), real estate (3.0 percent), retail food (2.4 percent), and retail products and services (2.3 percent). Lodging (-0.8 percent) is the only sector expected to experience a decline in the total number of units.
  • Employment. Net jobs in franchised businesses are expected to grow 36,000, or 0.4 percent (following a loss of more than 400,000 jobs in 2009). The report predicts the largest percentage increases in real estate (1.3 percent), quick service restaurants (0.8 percent), retail food (0.7 percent) and personal services (0.7 percent).
Employment is expected to decline in two sectors: lodging (-2.4 percent) and commercial and residential services (-0.9 percent).

In general, sectors expected to remain hot (or at least warm) in 2010 and the following years include: senior care; hair salons; lower-priced retail food (QSR); automotive maintenance and repair; business services (taxes, accounting, bookkeeping, coaching); children's services (gymnastics, tutoring, art/music, after-school care); home maintenance and repair (lawns, painting, renovation and restoration, maid service, electrical, plumbing); gyms and fitness centers; and convenience stores, to name just some.

2) Why the Time Is Now

Last week we listed five reasons 2010 is a good year to get into franchising:

  1. 1) an economy that appears poised for recovery;
  2. 2) good real estate that is both available and affordable;
  3. 3) franchisors offering good deals, plus increased support in obtaining loans;
  4. 4) booming sectors where franchise brands already have made their presence known; and
  5. 5) the experience, brand name, and proven track record good franchisors can provide when you're just starting out.

This week we expand on these reasons.

  • Control your destiny. With the job market remaining stuck in reverse, many of today's job seekers have shifted their focus from working for someone else to starting their own business and taking charge of their financial security - one of the strongest reasons entrepreneurs choose franchising to support their own American Dream.
  • Lower cost of entry. In an effort to keep growing in a shrinking economy, franchisors have begun offering scaled-down versions of their concepts. Smaller footprints mean lower real estate costs and new options for where franchisees can locate. Franchisors are also continuing to offer lower franchise fees, reduced or deferred royalties to start, and part-time versions of their original concept.
  • Real estate. In addition, the commercial real estate slump is opening new locations at some of the lowest prices seen in decades. Landlords seeking to fill space are offering better rates, as well as help with build-out, tenant improvements, and choice locations.
  • Proven business model. In a weak economy with consumer spending down, there is little or no room for error. Minor mistakes can sink a business more easily and quickly than in boom times. Franchisors offer franchisees a proven recipe for success:
    • a proven operating system (no need to reinvent the wheel);
    • brand name recognition to bring in customers;
    • a quicker return on investment, as well as reduced risk;
    • marketing support (pre-opening, grand opening, materials and collateral, and ongoing national and regional campaigns);
    • initial and ongoing support from both corporate staff and fellow franchisees; and
    • training, not only in running the business but also in managing and expanding it and developing an exit strategy.
  • Financing assistance. And in 2010, where's the money? Despite all the political rhetoric about the evils of big banks and the virtues of small businesses (and the urgent need to free up funds so they can survive and grow!), 2010 is expected to remain a tough year to obtain loans, especially for new businesses. Having a successful franchise brand behind you when you approach a lender greatly improves your chances of success in financing your dream. As capital remain tight, an increasing number of franchisors are stepping up with loan guarantees, financing, and forming relationships with lenders to free up capital for equipment, real estate, and additional units.
  • Something for everyone. Franchising is a business model, not an industry. That means it can be applied to any industry or business sector. And within each sector, there usually are several competing brands to choose from. Do you like dogs? Fixing leaky pipes? Caring for seniors? Hosting hundreds or thousands of hungry customers every day? No worry: in franchising, there's a concept, niche, or sector for everybody. It's just a matter of finding yours.

Even with all these good reasons to consider franchising, the usual "buyer beware" warnings apply. While success ultimately depends on your passion, dedication, and hard work, you still must choose the right industry, franchisor/brand, territory, and hire and manage the right people - another reason to remember that, in franchising, "Making it on your own doesn't mean making it by yourself."

Published: March 31st, 2010

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