The State of the Franchise Industry: 7 Aspects to be Prepared for 2022 and Beyond

(Part 6 of the Multi-Unit Franchising Conference)

As part of the Multi-Unit Franchising Conference series, this post will help you understand where the industry stands and where it’s going, based on the insights provided by Darrell Johnson, CEO of Frandata, the premier source of intelligence data in the franchise world.

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This expert shared the analysis of their annual review of the US and global economies, and the effects on franchising in the coming year and beyond, covering seven key aspects: 

1.  Impact of Covid-19

Darrell predicts that Covid is going to be with us for at least another year, perhaps even longer, since we’re expecting a fourth round of this pandemic and less than one-half of the world’s population is vaccinated.

This will bring consequences in many areas of businesses in the next months. He also foretold that the economic recovery will continue way beyond 2022, and the current supply chain disruption will probably last beyond 2023.

2.  GDP

Darrell mentioned that the GDP will rise in the US, as well as overall consumer spending. We can see this already happening: today, 65% of consumers are spending more than a year ago. Although this is very positive, the situation won’t be the same in other countries.

3.  Consumer sentiment

It will be fairly decent in 2022. But Darrell reminded that many people are still concerned about Covid and this will continue to affect customer behavior. He affirmed that the longer this pandemic extends, the further the changes will become permanent. 

For example, 60% of people wanted to shop in person before the pandemic; now, this is down to 37%, according to Frandata. Another thing that came to stay: delivery and to-go services, which may impact your business’s operations, investments, and strategies. So, you need to consider this forecast when planning for 2022 and beyond. 

Learn here how a big Taco Bell multi-unit franchisee redesigned his delivery channel to make it more profitable.

4.  Labor

The expert foresees that the increase in domestic labor wage will continue, which will make the operations and the cost of small businesses more challenging. About the staffing crisis, he listed some of the tremendous facts business owners are facing:

• 50% of businesses report unfulfilled jobs.
• The labor pool has shrunk since people are not looking for jobs as they normally did.
• Younger candidates are changing their thoughts of where they want to work and how much they want to get paid.

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All of these labor pressures may give you a hint to invest in replacing the necessary labor so your operations don’t stop. This may imply investment in technology like kiosks, external delivery companies, or to-go processes and systems so that you can still serve your customers.

5.  Inflation

Even though there’s a lot of cash and the consumers are willing to spend, there is not enough supply to support the demand. This is causing inflation. On top of that, there’s a big wage increase due to the lack of people to work and the demand for higher wages. 

All of this is driving prices up, which means business owners are spending more on their purchases and paying more to their employees, and a way to compensate for this is charging more to their customers.

Want to know more about your business numbers? Review these blogs.

Inflation’s a greater concern for the market. And even though the United States Congress continues to demand more stimulus, Darrell affirms that this will not solve either the spending or the supply chain problems.

6.  Access to capital

The CEO of Frandata said that every venue of availability has a different perspective:

• Conventional lenders are very hesitant and focusing on their existing portfolios, so the resources’ flow is very slow. They're waiting to see how things will turn out.
• SBA has a greater willingness to lend as they are turning into more standard lending. However, they are being more analytic of the brands and the borrowers. 
• Alternative lenders are coming to the forefront of lending. This means that the cost of this capital will be higher.
• Local lenders are going to be tighter in the states that have a higher risk due to restrictions.

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7.  Franchisee-franchisor model

The franchise model has to adapt to all of these changes and franchisors need to take a much serious approach to technology not only to improve the business but also to deliver the training and do the follow-up on employee performance. Speaking of training, Darrell foresees that the trend of giving the theory part online and the operational part in person will be something permanent for the long run.

He also advised franchisors to be more flexible to find alternative supply chain vendors and to adjust their standards, manuals, and agreements to keep and support their franchisees. Site selection is another factor that will be highly impacted because of the changes in consumer behavior mentioned before. The franchisee-franchisor relationship is also changing because there needs to be a lot more communication and collaboration between them to be able to cope with these crazy times.

Another tip Darrel gave: if you want to grow into a multi-unit and multi-brand, diversify the risk by investing in different industries so that if one of them gets affected, you can overcome the situation much better. 

Things in the next 12 to 24 months are looking up. There’s recovery and we will get there; it just might take a little longer than we thought. If you need help to overcome today’s challenges, you are not alone: The Franchise Academy and my coaching are here for you! Follow us on our YouTube Channel and other social media to access more resources like this one to make better decisions for you and your business. 

Reflections: 

• Do you agree with Darrell’s forecast?
• Can any of your processes be automated so you don’t depend on labor to operate?
• Are you missing opportunities because of a lack of tech adoption?
• Can you operate with a high level of excellence but fewer people? 

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