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Current Issue July/August 2020

Franchising Weathers the Economic Storm

The franchise business model is built to last through times of crisis

As we approach the summer months, it’s clear this will be a summer like no other in Canada. At the time of writing in April, the economic storm rages on, with the country still in full lockdown as a result of the COVID-19 crisis, and full closures in place for the foreseeable future. As Canadians isolate at home and practice “social distancing,” businesses are struggling, and only those that successfully adapt to the challenges presented by the pandemic will continue to thrive after this economic crisis is over.

As of April 15, more than six million Canadians have applied for the COVID-19 Emergency Response Benefit, which is in place to help those who have lost their source of income as a result of the crisis. But it isn’t all doom and gloom. While the forecasts are currently bleak, there’s hope that clearer economic skies are ahead of us. One reason for this hope comes in the form of franchising.

The resiliency of franchising

While no one can predict the future, we can learn from the past. Globally, franchising has successfully weathered economic storms before, including the Great Recession of the late 2000s. According to Franchise Canada Directory listings, there was a 6.5 per cent increase in franchise and corporate locations in Canada, and a 23 per cent increase in franchise opportunities (brands) between 2008 and 2010. In addition, the 2010 Franchising New Zealand survey found that despite the recession, the total number of franchised units in the country increased by 5.3 per cent between 2009 and 2010. And, 24 per cent of those 2010 respondents had started franchising in the previous five years.

While some franchise brands were undoubtedly hit hard during the Great Recession, others successfully expanded during this time. According to Forbes magazine, Subway experienced the most growth of franchise chains, adding close to 6,000 restaurants between 2008 and 2010. Commercial cleaning franchise Jani-King also added just over 4,500 locations in that same period.

We can also take a closer look at what’s happening right now in Canada. In the Canadian Franchise Association (CFA) webinar, “Emerge from COVID-19 with a Growth Plan: How to Build Your Franchisee Pipeline Right Now,” Reshift Media noted that “franchise ownership” online searches are just as strong as they were last April. More interestingly, they found that “self-employment” related searches are up 733 per cent, and “work for self” is up 525 per cent.

This shows that entrepreneurial Canadians, many of whom are recently out of work, are choosing not to go back to the corporate world and instead are looking for ways to make their business dreams become reality. Franchising is a strong candidate for making that happen, even in tough economic times.

A strong support network

The general principles behind franchising make it a more resilient model. There is a tried-and-true system in place, with detailed operations that allow the business to be easily replicated in communities across the country. As a result, consumers recognize and are familiar with these franchise brands, and franchisees can rest assured that the system is providing a relevant product or service to this consumer base.

One of the many advantages of the franchise business model is that franchisees don’t have to go it alone. While franchisees are small business owners, they have the backing of a franchise system that can provide much-needed support during challenging times. While an individual franchisee may not have experience with this kind of crisis, the franchisor has likely navigated through turbulent times in the past and can use this insight to help its network of franchisees.

As challenges arise, the franchise head office team not only has valuable to knowledge to share with the network, but they also have the research, contacts, and resources they need to adapt and innovate their operations to meet the specific challenges, whether that’s changing a marketing strategy or updating the product offering. For example, if a food franchise needs to adapt by also offering grocery products to customers, it’s a lot easier for the franchisor to determine the strategy and communicate it to individual franchisees than it is for a franchisee to test out a strategy while trying to keep the day-to-day business afloat.

With franchising comes opportunity

While there are many downfalls to an economic crisis, it can also bring opportunity. Affordable real estate is hard to find in a hot economy, but when the economic climate cools, more real estate can become available, and at a more affordable rate. This is especially important for new franchisees, who can focus more on building their business rather than worrying about being able to pay their rent during this pivotal first year.

During an economic downturn, Canadians who have been hit hard by the tough times don’t have a lot of disposable income. The good news for franchisees is franchises often provide mid-market goods that are still accessible to consumers when budgets are tight, including affordable food service and retail options. Further, franchises provide services that consumers will continue to need, from health care and cleaning services to haircare and health and fitness. Certain franchises also provide essential services, including shipping services and pet care, and have remained open during the crisis.

Better weather ahead

These are tough times for Canadians, but better weather is coming. For those entrepreneurial Canadians who find themselves out of work or who are just ready to take the plunge into business ownership, franchising just might be the right business model to make those business dreams come true.

 

 

 

 

 

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