Like truly all businesses in the post-pandemic era, those that operate in restaurants, cafes, food trucks or any type of F&B franchise space are experiencing a wave of major changes, as is the food business. franchise as a whole. Accelerated and high adoption of technology; consumer demand for more efficient and on-demand service; and employee calls for greater flexibility are among the many linchpins in the industry that seemingly evolve day by day.
These and other changes and challenges each have their own implications within the franchise space, an industry projected open more than 26,000 locations and nearly 800,000 new jobs, employ nearly 8.3 million people and contribute $ 477 billion to U.S. GDP by year-end 2021.
“Amidst all the economic benefits and changes that are propelling the industry into new territories on several fronts, there are also many disruptive trends that, if not properly tailored, can become decisive factors for a business based on franchise. “, Warns Jimmy St. Louis, CEO of Franchise123.com.
According to St. Louis, here are some key disruptive trends reshaping the space.
Transparency takes the lead
Now more than ever, accurate data and transparency is no longer a demand, but rather has become a fundamental requirement. The franchise development industry has never experienced the collective, global transparency of franchise data that is currently underway. Franchise brokers, consultants and online franchise portals currently dominate the franchise development industry, but these outdated methods do not adequately meet the needs of modern investors.
Regardless of the investment, buyers expect transparency and comprehensive data to facilitate the verification process. Franchise buyers don’t just want to be sold, but rather invest in a business that will best ensure their financial, professional and personal prosperity.
A good franchise selection has the greatest impact on whether or not a franchisee is successful in any or all of these areas. Brokers and franchise portals not only limit the options available, but can also steer a potential buyer towards a brand that does not match their goals, objectives and sensibilities.
Industry portals are perishing
Specialty lead generation and business development portals have long been the link between franchisors seeking to engage with potential franchisees, and they are dying on the vine, and rightly so. While consumers may not know it, portals can do them a disservice. This is due to the fairly ubiquitous business model in which portals are paid for the leads created, which inherently creates a bias and weighting of interests towards the portals themselves versus potential buyers. This means that as a franchise investor, a portal earns you money whether or not you are genuinely interested in the brand you just clicked to verify.
Beyond this dynamic, there are a myriad of other issues with franchise portals. Brands turn to these portals to find qualified and interested buyers, but often feel like they are wasting their time, energy, and marketing dollars on unprepared leads. Those who are often not pre-qualified, vetted or properly oriented towards the applicable brands. In addition, the future franchisee is often prematurely bombarded with phone calls before they even understand the brand. In turn, they are also left on their own to organize their thoughts, conduct their own research, and make their own investment decision. Thus, franchisors complain of overpaying per lead and accounting for very limited results, which erodes business development budgets which are stressed and declining after COVID-19. These dollars are now allocated to other lead generation methods with a more demonstrable ROI impact.
Mass entry incidents
Also in the wake of COVID-19, people are more suspicious than ever. Many have lost their jobs and, with it, their sense of stability in a traditional career path. Suddenly, a 9 to 5 job and the promise of a salary every two weeks no longer seem reliable and, apart from the income, many people are also looking for more professional autonomy. The recent pandemic has accelerated the mass exodus from traditional careers and fueled the transition to self-employment, collaborative work and entrepreneurship. With this, franchise businesses have become a very popular option for people looking to pursue a more entrepreneurial path while absorbing less risk.
This wave of new buyers seek to capitalize on the ingrained support – and leverage the power of an already established brand – as they embark on the path of entrepreneurship. However, this eagerness and enthusiasm can lead to hasty or high pressure decisions and avoidable mistakes, with selecting the wrong franchise for their goals and personality being paramount among them.
Industry insiders say new legislation will soon be proposed that threatens the profitability of the franchise broker’s business model. Franchise brokers expect to receive a portion of the upfront fees that a new franchisee has paid to the brand up front, before the unit opens. For example, if a franchise investor pays $ 99,000 for the rights to open five locations, a franchise broker typically receives 50% or more of that commission, regardless of the number of locations opened by the franchise. However, the newly proposed legislation allows brokers to collect franchise fees as each franchise unit opens. This payment paradigm changes the entire selling process and cash flow for a broker. The fact that there are thousands of franchises sold each year that never open is compounding the concern.
Under the current system, brokers are paid for their efforts to successfully bring a new franchisee into the fold, whether or not a unit opens, an aftermarket situation beyond their control and sphere of influence. All of this dynamic can put both the broker and the franchisor in a more compromising position, strain professional relationships in the process, and potentially undermine a franchisee’s ability to get the right help from a broker when it comes to dealing with the issue. he wishes it. Simply put, this new legislation will align the interests of all parties, but the broker network surely won’t like it.
What does this mean for the future of the franchise?
“These disruptions in particular raise major concerns for all contingents: inadequate access to mission critical information, cost inefficiencies and competing interests among them,” noted St. Louis. “Franchisors have great difficulty finding qualified franchisees due to the misaligned interests of the portals. This given that brokers and the tidal wave of potential new franchise buyers themselves lack the means to source qualified information and effectively connect with the right franchisors. This sector illustrates the need for innovation and we expect to see several technological solutions emerge over the next few years. Transparent, self-guided sales processes have already started to dominate a multitude of industries, from buying homes on platforms like Zillow and cars on Carvana to buying insurance and more. The development of the franchise is long overdue for the change; namely to establish a more innovative method of sales which genuinely aligns the interests of franchisors and franchisees, to the drastic benefit of all parties.
Perhaps anything less than what St. Louis describes would be like buying a home without access to meaningful online data, resulting in totally inefficient and ill-informed decision-making that only exacerbates the risk. In today’s marketplace, and in the extremely hard-hitting franchise business in particular, this kind of outcome is utterly unnecessary, preventable, and will surely be viewed as totally unacceptable by industry experts. Today, one couldn’t even imagine buying a home without the proper online resources.
According to a report, assuming control of the COVID-19 pandemic is coming this year, FRANdata predicts that by the end of the year the franchise will have returned to near 2019 levels in most metrics: growth in businesses, employment, economic prospects and contribution to GDP. The report also mentions that total franchise production is expected to increase 16.4% and contribute $ 780 billion to the US economy. Much of this is based on archaic systems and processes riddled with loopholes. Just imagine that the economic recovery was the space for franchise development to operate more efficiently and fairly.