The Unemployment Paradox

Recent articles highlight the boost a declining job market could have for franchising. Indeed, the typical story is that increased unemployment can bolster franchising recruitment. Yet, is now a great time to establish a new greenfield unit?

While unemployment can lead to franchise system growth, one of the bigger benefits right now has been filling job vacancies. Some franchisees had been struggling due to staff shortages, while others had to constrain growth due to lack of quality staff.

Reducing staff shortages is in itself a big boost for franchising. It was one of the most pressing constraints identified among franchisors in Franchize Consultants’ annual Franchising Confidence Index research.

For franchise system growth, which naturally requires greenfield franchise recruitment, there are challenges – despite a softening labour market and increasing unemployment. Greenfield development obviously benefits from a strong economy and wider environment. It follows that with a tougher business environment, a new greenfield business case may be tougher to launch – particularly in cyclical industries.

This means, for some companies, the main franchise recruitment benefit may be around demand for established franchisee-owned units (via resales) and an opportunity to convert established company-owned units to franchises.

Who can take advantage?

Given this backdrop, who can take advantage of increasing unemployment for new franchise unit growth? The following are likely best placed to capitalise.

1.  Franchises with an ideal franchisee profile that matches new unemployed candidates. Different sectors show softening employment levels. Universally, however, lower-investment opportunities with simple business models are likely to receive increased demand.

2.  Franchises with a strong track record of good investment returns in tough times. Meanwhile, those experiencing a cyclical downturn will be more challenged for new developments, due to investor confidence and access to finance.

3.  Franchises with access to strong financial and non-financial performance information – including franchisee benchmarking. This helps franchisees plan, and increases confidence among lending partners for new developments.

4.  Franchises with strong long-term banking partnerships. These will be better positioned to access finance for greenfield developments as banks trust their business model and leadership.

5.  Franchises with strong franchise systems and support. They are more likely to attract intelligent franchise prospects and enable greater access to finance.

Established franchisors should look at ways to solidify their ability to attract and successfully establish new franchisees.

Franchize Consultants has been providing small, medium and multi-national sized businesses with franchising structure, strategy and improvement advice for 35 years. It is six-time winner of the Westpac New Zealand Franchise Awards Service Provider of the Year title.    

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