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HOW ARE FRANCHISES RESPONDING TO RECESSION?

by Simon Lord,
last updated 23/07/2009

in this article:

Franchises tend to do pretty well in a recession, but that doesn't mean that franchisors or franchisees can afford to be complacent. Franchises which have not taken care to get their structures right, or which have not adapted to changing markets, will run into difficulty - no matter how hard franchisees work. Here are six key areas that good franchises will be working on as they organise themselves for the immediate future.

1. New customer offerings. The mortgage broking franchises are already expanding into insurances, financial services and even accounting services, and other franchisors will also be looking for new revenue streams. Franchisees can help drive product and service development, but franchisors will need to have systems in place to ensure ideas are appropriate to their brand and abilities.

2. Consolidation. Weaker and poorly-structured systems will show the cracks, and better systems will either buy them or drive them out of business. In Australia, Eagle Boys has already taken over erstwhile competitor Pizza Haven. The same opportunities will exist here, particularly in currently over-crowded sectors.

3. Restructuring. What worked in the past may not be right for now. What services do franchisees actually need to succeed? How should they be delivered? How can they be funded? Another Australian franchisor, Lenards Poultry, is buying back its master franchises and cutting out that entire level of its structure. That requires huge commitment.

4. Increased support. More effort is going into franchisee support, cost-management and performance-management systems. Bold new images may need to go on hold as customers look for the reliable and familiar. Franchisees can benefit from training in practical sales techniques and budgetting. In some cases, effort is being  shifted to bottom-line returns rather than top-line sales.

5. Recruitment. Downturns increase the pool of available franchisees, making system growth a real possibility for many franchises. As long as the franchise model is sufficiently robust for new franchisees to succeed in the current climate, growth will increase market share and buying power as well as boosting confidence among franchisees. However, franchisors do need to be careful to maintain recruitment standards. Recruitment should be an investment in the future, not a source of short-term income. Which brings us to...

6. Recapitalisation. Franchises are open to the same dangers of being undercapitalised as any other business, with the added complication that if they fail they may take many others down with them. Franchisors need to arrange their finances for the long haul and encourage franchisees to do the same.
The franchise sector in New Zealand will weather the current downswing and emerge stronger than ever. Sadly, there will be those - franchisors and franchisees - who don't make it, but those who do will be in a great position to take advantage of the next upswing in a few years' time.

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