The Market

by Simon Lord

last updated 29/07/2009

The Good News...

by Simon Lord

last updated 29/07/2009

March 2009 - Last week I was asked to give a presentation to an audience of master franchisees on Current Trends in Franchising. I divided my speech into bad news and good news. Not surprisingly, given the current economic climate, the second part of my presentation was shorter but at least it was not all negative. So what is the good news? Here are ten positives to focus on.

1. The potential supply of new franchisees is increasing. Redundancy and uncertainty over security are powerful motivators. Franchises which are well-structured and which can offer some security will do well. Existing franchisees will benefit from new growth in their franchise and increased buying power.

2. Having more potential buyers in the market will enable existing franchisees who are past peak performance, or too much in their comfort zone to try new things, to sell up and move on.

3. Franchisees who are not performing, or who won't act upon advice or follow the system, will be forced to exit the franchise, enabling new franchisees to take over.

4. People are no longer looking at property (or shares) for investment - they want cashflow. Franchises that offer good cashflow, or that can sustainably offer guaranteed work, will benefit.

5. Another advantage some franchisors offer, especially in the service sector, is making it easier for people to get their money, perhaps by providing credit control services. Such services will increasingly be seen as valuable.

6. Banks will be more cautious about lending. This might seem like a negative but in terms of supporting franchises with workable models, if a bank is willing to lend then it should be taken as a measure of confidence in both the franchisee and the franchise system.

7. Franchises will fare better than independents when it comes to business borrowing. I was recently told by one bank that its record of franchisee failures was well under one per cent - something other business lending divisions are unlikely to match.

8. Franchise models based on constant growth and continual franchise sales are unsustainable and will disappear from the market, increasing market share for properly-structured systems.

9. The prospect of regulation should make franchisors more careful in their recruitment procedures. If introduced, regulation should increase public confidence in franchising.

10. Everything is cyclical. This too will pass - and good franchises will emerge better than ever. There is plenty of evidence to support the claim that franchises perform well in a recession and if franchisors and franchisees are prepared to invest in growing their market share and improving their systems then they will emerge from this period stronger and better.

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