The Future of Franchising

June 9, 2021. Harry Welby-Cooke

Franchising remains a critical contributor to the fiscus and is probably the easiest industry to truly scale businesses, employment and economic transformation.

From the early days of the Singer Group (yes the sewing machine people) to the massive multinationals of McDonald's and Starbucks, franchising is more a part of our daily lives than we even know.

The obvious ones are the food brands but think tyre companies, car servicing, fuel stations, educational support for children, even grocery stores – the list truly does go on and on.

Like any industry though, the franchise industry has definitely been ‘interesting’ since March 2020. Basically, we’ve seen 3 types of impact since the global pandemic began;

One-third of businesses, and franchises, are thriving. The Spar group for example has had some of their best years ever and despite lowish margins, there are queues of potential owners lining up to buy Spar, Build-It, or Tops stores – if they can find one. Many others are in this same favourable position.  

The second third of businesses, and franchises, have managed to adapt, dare I say pivot, or find ways to work within the supposed new normal. Not much has changed and it is pretty much still businesses as usual.  

The last third has been, and is, struggling in the new normal. Whether it be large and expensive retail footprints, low consumer confidence and spending, reliance on sectors not yet bouncing back (e.g. tourism), margins under pressure, the shift to online shopping, or a range of other factors – life is hard for those brands right now. When stalwarts like Spur and Wimpy start closing stores you know there’s a massive shift taking place.

All this is neither COVID related nor the current economic climate. All this is are highlights of the reality that either you adapt … or you die. This is not a new phenomenon and in fact is a universal principle. The franchising sector has undergone massive changes, knocks, threats, challenges or whatever you want to call them over the years. Those that could, and most importantly did, adapt are still around today and are thriving. Those that didn’t … no longer exist.

My favourite way to explain franchising is through Ray Kroc’s quote, from McDonald's fame: "Franchising is about being in business for yourself, but not by yourself.” So what does the future then hold for the critically important sector? Well the aforementioned quote has all the answers

Franchising is about business. Franchising remains a business. Core business principles remain critical and therefore the focus needs to be on; Win / Win, respectable and commensurate ROIs all round, a customer-centric value proposition, a trusted brand constantly improving, and world-class systems.

• About being in business for yourself

The days of buying a recognized brand, putting a sign up above the door and sitting back to rake in the profits are probably gone forever. Just because you’re in a franchise doesn’t mean there’s any less effort required to make it successful. The path should be smoother but it’s not a hands-off approach. Franchisees will need to actively drive their success much more rigorously. True owner-managed operations will become more vital to ensuring success. 

• But not by yourself

Whilst in theory the essence of franchising is a partnership between franchisor and franchisee; only those that truly get that and embrace that reality will succeed. The behemoth, authoritarian, corporate structure barking orders to the bottom of the pyramid will no longer cut it. Similarly, the tail wanting to wag the dog won’t work either. 

The franchisor needs the franchisee and the franchisee needs the franchisor. In fact, even the franchisee needs the franchisee down the road. 

Truly a partnership, and truly ‘not by yourself', will be the perfect recipe going forward.

• ‘Multi-store’ ownership and corporate stores

Franchising will no longer be a pure franchise model. As with most things a hybrid. Within the model will ensure success. This will almost surely result in even more ‘multi-store’ ownership taking place. This ‘multi-store’ approach could be deep within a particular brand (e.g. ‘multiple stores’ of the same brand but spread regionally across a territory) but also wide across a range of brands (e.g. in the case of Famous Brands a Steers, a Debonairs and a Fishaways all being ‘one’ store and owner). These will ensure localized teams of people actively driving the businesses. No longer will a junior manager report to a hands-off owner. All brands will also need to move to a combination of franchises, ‘multi-store’ owners and corporately owned operations and the real reality of cross-shareholding and ownership even between these. There will definitely no longer be a ‘one size fits all’ scenario.

Franchising remains a vital way to get more entrepreneurs into business for themselves, but not by themselves. It remains a critical contributor to the fiscus and is probably the easiest industry to truly scale businesses, employment and economic transformation. Reputable and adaptable franchises will thrive, back better than ever or be created from scratch. The rest will not. Choose wisely but know that with the right partner in your corner – anything is possible. 

Go franchising!

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