In this month’s Franchise Times Magazine, hear from FPG’s very own Alicia Miller on the smart approach to franchising in 2020:
New year, new decade. Time to reflect back and look ahead. The franchise model is resilient—powerfully combining entrepreneurship, brand and community.
But there is market disruption. It’s crowded. Regulatory, labor, competitive and economic pressures lean on franchising as never before. Buyers are better informed.
Consumer demands are shifting. Technology enables, wrecks and reinvents—fast. Private equity bets impact brand velocity. Meanwhile, a generational transition is coming. Some brands will be left behind; others will win big.
According to FRANdata, there are 4,000-plus “active” U.S. franchise brands and another 200-300 brands enter each year. Development efforts also compete with re-sales and the currently robust job market. Economic signals and geo-political events add noise. Combined, it’s a veritable distraction thicket for buyers. Even brands with strong propositions must rise above the din to attract the right candidates.
It’s really a three-tier market
There are effectively only three franchise types. The tiers are defined by brand strength and trajectory, financial health, sales growth, franchisee confidence, and steady net unit growth, not by absolute size.
Strong and Iconic: Strong brands have positive momentum and generally happy franchisees. They are masters of both their customer-facing model and the business of franchising. They close more deals and attract the best franchisee candidates—with higher brand valuations to match. Among thousands of franchises, true category leadership, best practices and influence reside within a subset of iconic (or widely viewed as soon-to-be-iconic) brands.
Weak or Irrelevant: The weakest brands stall, shrink or, worse, they never break out or recede into irrelevance. Emerging brands can land here if unprepared or underfunded.
The Vast Middle: Between the haves and have-nots is a vast middle tier. They may have mass, but limited gravitational pull. They might have brand loyalists, but don’t excite. They may have dated brand perceptions, so-so validation or tepid differentiation. Unit-level economics are often slipping. Some reinvention may be needed.
The inert middle tier lacks positive momentum enjoyed by market leaders. They seek ways to re-ignite franchise sales and newly inspire employees, customers and franchisees.
Franchise Grade’s analysis of the 2,489 brands in its index reflects this market view. Net outlet growth is up 19.8 percent over the last nine years, but not universally.
In the top tier, 654 franchises grew net unit count by 80 percent. In the middle tier, 217 franchises were unit-neutral (they added and closed units at roughly the same rate). At the bottom, 665 franchises had shrinking footprints.
Mirror, mirror on the wall
Let’s turn to 2020 development planning. Assess your relative position against growth objectives. Be brutally honest (or engage an experienced outsider to help,) to build a plan that moves your brand forward.
Start by focusing on the engagement and prosperity of the franchisees you already have, whether you have 10 franchisees or 10,000. At FPG, we assert that more than 80 percent of your owners should say, “I would do it again.” If unit growth is disappointing, start here. You likely have validation, franchisor/franchisee relationship, or unit-level profitability issues.
If you’re in a strong position, don’t settle for anything less than owning your category. Innovative technology usage, defensible differentiation, customer loyalty hooks, strategic partnerships, hyper-focus on unit profitability, systems excellence, and acquisitions are only some examples of approaches to achieve and maintain dominance.
This approach extends to recruiting; be even more selective. Consider increasing financial or relevant experience requirements. There is a kinetic, flywheel effect to scarcity and perceived exclusivity. Consider, too, incentives for exceptional candidates. Reduced fees or marketing consideration for highly capitalized and experienced groups can accelerate growth.
Don’t, on the other hand, give in to temptation. When brands begin to struggle, they often approve suboptimal franchisees because they “need deals.” What you really need to thrive are the best operators.
Transparency wins, so allow the right candidates to opt-in. Today’s buyers move on if they can’t quickly find what they want online. Push rich content about your offering to the front of the discovery funnel. Remove gatekeepers. Improve financial disclosures. Struggling to articulate a compelling story? Red flag! Your model needs improvement.
Demand higher quality, not quantity, from your lead-gen team. Employ better targeting. Give more attention to fewer candidates to increase applications. Leads and buyers are different. On the employee side, invest in developing the skills of your recruiting team. I encounter a wide range of engagement quality when I mystery-shop. Arm your team with the skills they need to succeed.
Robust franchisee onboarding, meanwhile, is a must. Make new franchisee success an immediate 2020 priority if your brand isn’t already an expert onboarding practitioner. Likewise, increase efforts to open sold-not-open, or SNO, units. Invest in project management. Provide acceleration incentives. Build a custom program for multi-unit development.
Along these lines, consider selling multi-unit options. Performance-based options can avoid locking up a glut of SNO territories. It’s easier to award more than to take away territories.
For emerging brands especially, be strategic about where you add units. Prioritize markets where your concept resonates, headaches are minimized, there is adequate support, and franchisee costs are rational for your model.
Your development team can’t “sell” your brand out of a bad position. If unit-level-economics and franchisor-franchisee relationships are weak, recognize that you’re in a turnaround situation or headed there fast. Fix your issues and you’ll sign more agreements.
Start 2020 with a clear situational view and create a brand-momentum strategic plan, not a sales plan. Remember, it’s franchise talent recruiting and development—not sales.
New to the Franchise Times columnist lineup, Alicia Miller is a Principal at Franchise Performance Group. Her Development Savvy column covers smart ways to market and grow a franchise. Reach out to FPG by completing the form below.
To follow Alicia’s column, visit: http://www.franchisetimes.com/