Since franchising’s early beginnings, the business model has always adapted to the economy and culture. While the recent global pandemic taught us that predicting the future is nearly impossible, I wanted to share some trends that I see on the horizon as critical to the future state of franchising in America.
Impacts of Politics and Legislation
The first is changing legislation and regulation. While people familiar with politics might understand the cyclical nature of changing parties and legislative agendas, sometimes it can be hard to see how changes on Capitol Hill connect with franchising. If you want to stay informed about what’s happening in franchising, you should get involved with International Franchise Association (IFA) to get up-to-the-minute updates from its government affairs team. And if you want your voice to be heard, consider joining the IFA Franchise Action Network, which makes communicating with your members of Congress as easy as clicking a button.
Outside of letting our elected officials know that they represent thousands of franchise owners, and voting for candidates who will support local businesses, there’s not much we can control about federal politics so I encourage franchisors to focus on what you can control. Perform a legal review of your operations manuals, train your franchise support personnel to know what is okay and not okay to say, and don’t be afraid to engage a third-party law firm to interact with franchise owners.
Enhanced Role of FSO and Broker Groups
Another trend I see having a growing impact in franchising is the increased role of franchise broker networks and franchise sales organizations. According to FRANdata, this year, franchises will open more than 26,000 locations; create nearly 800,000 new jobs; and contribute $477 billion to the US GDP. Franchising is booming and a critical part of that boom is getting the right franchise owners in the right systems. I encourage franchisors to become familiar with the players to understand what working with brokers or FSOs mean for your system. Can working with these groups augment your current sales efforts? Does your franchise fee structure need to be modified to accommodate commissions? If you’re system is structured for high growth, these groups can play a significant role in helping you to achieve your goals.
Increased Investor Interest in Franchisors
Investors, and in particular, private equity investors, are coming to realize what we’ve known for a long time. Franchising is a great investment. It has consistent returns, and when run properly, can create increased profits by becoming a more efficient, effective system when you leverage scale. Since 2016, more than 200 franchisor transactions have involved private equity – and those transactions total more than $63 billion in deals. In addition, more franchisors are pursuing public options as well though traditional IPOs or through a SPAC (special purpose acquisition company). So what should franchisors do to prepare for this trend that could shape their business? Define your end goal and ask yourself:
- What is your timeline to transition the business?
- Do you want a majority or minority investment?
- Do you want a pure private equity partnership or a strategic sponsor?
- What role do you want to play post-transition?
Evolution of Service Franchising
As consumers ourselves, we know that the modern day consumer and customer in America prioritizes convenience, digital simplicity, and immediate action. Our business model of service franchising is happy to fill the “do-it-for-me” need that we are seeing rising as a customer trend. By building scalable, efficient businesses, we are able to quickly and efficiently meet the growing demand for home services. Because of this consumer demand, we’ve seen new service categories created, such as mosquito control with Mosquito Squad and pet waste removal with DoodyCalls. I think both franchisors and franchise owners need to evaluate their offering – are you developing a scalable service offering that meets a consumer’s needs and wants? Are you committed to consistent consumer marketing? And when you are marketing, are you able to make data-based decisions to ensure marketing dollars translate into revenue? If your current marketing budget is not getting you a return, you have to find great partners – either internal staff or vendors. Capturing consumer demand is foundational to your success.
Digital Transformation in Consumer Engagement
A study at MIT found that companies that have embraced digital transformation are 26% more profitable than their peers. However, I think everyone has come across a company or service that has failed to rise to the challenge of a customer-facing digital experience. Even though we’ve been using the internet for more than 30 years, there is still a digital divide between companies who have evolved and those who have failed to do so. And buyers take their money to brands that make it easy to do business with them, with multiple channels to purchase – through social media, chat, text, phone, online, and more. Buyers expect to know what’s happening and when with their purchases and services. If I can track my pizza and when it will arrive, why shouldn’t I be able to know when my HVAC technician is on his way? By investing in digital transformation, we are setting our businesses up to be leaders in their industries, many of which have been slow to adopt digital transformation. We do this by evaluating the process – the process of how a prospective customer engages with your brand and how they’re tracked through their journey. By understanding where people drop out through the process, you can better address weaknesses in the process.
Ultimately, the future of franchising is bright. We anticipate 2021 to be a record-setting year in many ways. If you’re not already a part of the Authority Brands family, I welcome you to join us in being a part of that exciting growth.