What is the growth/decline in the Franchise Industry?
The franchise industry was expected to grow in 2015 according to a Jan. 2015 report sponsored by the International Franchise Association Educational Foundation. (Franchise Business Outlook for 2015, prepared by IHS Economics)
• 2014 was “a solid year for growth for the franchise sector” with “employment of franchise businesses up 2.8% and franchise output (in nominal dollars) up 4.9%.”
• The Franchise Business Index also showed strong growth in the last quarter of the year.
The 2015 report predicted the following:
-The number of franchise establishments in the United States was expected “to increase by 1.6% in 2015, matching the pace of growth in 2014.”
-Employment growth in the franchise sector was expected “to outpace the growth of employment in all businesses economy-wide, as it has in each of the last four years.”
-Franchise employment was expected “to increase 2.9% in 2015.” “Over the five-year period, 2011-2015, average annual job growth in the franchise sector, at 2.5%, will be 0.4 percentage points higher than for all businesses economy-wide.”
-Growth of the output of franchise businesses in nominal dollars was expected to “accelerate to 5.4% in 2015 as output per worker in the franchise sector increases slightly.”
-The gross domestic product (GDP) of the franchise sector was expected “to increase by 5.1% to $521 billion in 2015.”
• In “A Franchise Leader on the Benefits and Challenges of Multi-Unit Ownership,” Entrepreneur, Jun 4, 2014, the reporter, Tracy Stapp Herrold, interviews successful multi-unit franchisor Aziz Hashim.
• Hashim says that “multi-unit franchisees survived the recession better than single-unit franchisees” and that “every brand you talk to now is interested in soliciting multi-unit franchisees.”
What are they doing about cost reduction now:
Note that the section on challenges includes recommendations that will help with cost control and reduction
“How to manage multiple business locations,” Inc., March 4, 2010
• “Systems will allow you to duplicate offices and grow faster with reduce training times and supervision.”
• Establishing “clear responsibilities, boundaries, and authority” will help prevent costly mistakes in the remote offices. The organizational structure should make each employee’s responsibilities clear.
Cloud-based solutions for employees and customers can cut costs substantially. There are hundreds of companies offering products. Sources such as PC Magazine, Inc., Entrepreneur, and Forbes review products periodically.
Online collaborative tools keep teams working together cost effectively and reduce travel costs. Some examples include:
• Salesforce.com (http://www.salesforce.com/)
• Google and gmail products
• Basecamp (https://basecamp.com/)
• Redbooth is “used by thousands of project managers, teams, contractors and freelancers.” (https://redbooth.com/)
• Huddle “is used by more than 100,000 businesses and government organizations across 180 countries.” (https://www.huddle.com/)
• Nutcache, a “cloud-based collaborative project management system that comes with integrated invoicing and time tracking applications.”
• Capterra reviews collaboration software products at (http://www.capterra.com/collaboration-software/).
• PC Magazine compares the best online collaborative software for 2015 at (http://www.pcmag.com/article2/0,2817,2489110,00.asp).
Hashim, in “A Franchise Leader on the Benefits and Challenges of Multi-Unit Ownership,” Entrepreneur, June 4, 2014 says this about cost reduction: During the recession, when many franchisors cut back to improve profitability, they realized that “it’s much easier to have a handful of very large, well-capitalized franchisees to support than to have a very large cadre of individual franchisees who may run into trouble when sales are volatile.”
What are the challenges/struggles the industry faces:
Challenges that come up all through the literature include:
• Maintaining adequate communications throughout the offices
• Managing teams across offices
• Maintaining quality control and delivering on brand promise, especially in franchise situations
• Providing consistent HR across offices
• Managing a variety of corporate cultures across offices
• Keeping track of the overall financial condition of the parent company and all locations
• Maintaining integrated systems (phone, accounting, inventory, etc.) across all offices
• Maintaining team cohesion can be challenging: it can be difficult to spend enough time with staff at all locations or to create situations for spontaneous conversations, while some collaborative efforts among staff are tougher, in part because team member don’t know each as well as those in one office. “How to manage multiple business locations,” Inc., March 4, 2010
• Communication: Communication across offices can be tricky. Suggestions for preventing problems include virtual meetings, scheduled trips by top management to all locations, requiring periodic progress reports, quarterly training sessions, and annual social events.
• Kelly Services offers more advice on maintaining good communications across offices at “Dividing Your Time Between Two Offices.” Suggestions include shorter, more frequent meetings with employees at all locations; scheduling remote meetings that include high level management to discuss team projects; creating clear guidelines for remote employees to follow and following up with quality control checks; and taking advantage of the technology available to connect people remotely.
• Aziz Hashim, in “A Franchise Leader on the Benefits and Challenges of Multi-Unit Ownership,” Entrepreneur, June 4, 2014. A “significant portion of a multi-unit franchisee’s time has to be dedicated to HR. It’s one of the few things that cannot be delegated completely.”
• “Managing a company based in multiple locations,” The Guardian, April 2013 says the “key to multiple location management is to ensure that information is shared across the entire company simultaneously.”
– Everyone is then up-to-date on important information and feels a sense of community.
– “Businesses must ensure that there is one main method of digital communication” or the systems will be too difficult to manage effectively.
– A senior management team should “undertake communication on the company’s behalf.”
– “However much you trust your leadership team, it’s essential to maintain a top level presence across all offices.”
– Promote cross office collaboration.
– “How location-based marketing helped Cousins Subs increase sales,” Fast Casual, Oct. 31, 2015. Because consumers are usually searching “for information about individual locations, not the brand as a whole,” companies need to use localized marketing tools such as technology built into mobile devices. Cousins Subs is starting to reach customers through notifications available with GPS tools that can determine a user’s location. Cousins Subs, are learning to use it to reach customers through notifications.”
The franchise industry is concerned about the August 2015 decision by the National Labor Relations Board ruling that find companies can be held responsible for labor violations committed by their contractors. The ruling would affect individual franchises.
What does the future look like for the industry:
The growing list of online and cloud-based tools will allow more and more businesses to become multi-office and multi-location.
The International Franchise Association predicts another good year. Its 2016 industry outlook is not available yet at the site, but a blog post (http://www.franchisefred.com/franchise-forecast-2016/) summarizes it briefly.
• The report predicts “that the franchise sector will outperform the overall economy next year by posting a 5.1% gain against a projected US gross domestic product increase of 3.1%.”
• The sectors expected to see the most growth include personal services, lodging, business services, fast-service restaurants, retail products and services, and residential and commercial services.