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A Bad Economy May Benefit Franchises

Learn what drives franchise sales, even in a slowing economy.

Mark Siebert

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With all the negativity making headlines these days, it’s difficult sometimes to maintain perspective.

Reading Dickens’ – “it was the best of times, it was the worst of times” – the period was so like the present, it seems that perhaps he only got it half right. But for franchisors, truer words were never spoken. Yes, there are some short-term difficulties that will take time to flush through the system. At the same time, however, there are a number of reasons to anticipate that the best of times are right around the corner. Perhaps the best place to gain this perspective is by understanding what drives franchise sales.

Driving Sales

There are, of course, thousands of factors that drive franchise sales at the micro level. A bad day at the office. An overbearing boss. A neighbour’s franchise success story – and perhaps his new Mercedes. A cancelled flight that leads to the missed soccer game.

But at a macro level, there are three predictable factors that can lead to a surge in franchise sales activity – and many of them are pointing to a franchise boom on the horizon.
The first and foremost factor affecting franchise sales is a rising unemployment rate and the fear of losing one’s job. The fluctuating unemployment rate is terrible for the economy, but, while it sounds callous to even mention it, what this means for franchisors is a larger pool of franchise candidates.

Silver Lining

Every increase in the unemployment rate adds a significant number of prospective franchise buyers to the marketplace. As these newly unemployed hit the market, many will dutifully send out resumés and try to network their way into a position.

But for many, the sad truth is that they will never be able to replace their past level of income by working for someone else. After a few months of futility, many of these formerly employed will realise that the only way that they can hope to match their past salary will be to start a business of their own. And often, they will want the proven systems and support that franchising provides. Consider mass retrenchments. These come from the country’s biggest companies, and it’s precisely these companies that are most likely to provide their employees with some type of severance package that could fund their initial venture into business ownership.

And it’s Catchy

Even those employees who are left behind are more likely to jump ship – or plan for it in the near future. As these ‘near retrenchments’ see their friends and relatives heading for the unemployment lines, they become increasingly concerned about their own job security. And in the process, many will recognise that the only way to be in control of their own destiny is through business ownership.

Bad News is Good News

The second major factor affecting franchise sales is the stock market. Again, bad news for the economy can mean good news for franchisors. During the days of the Internet bubble, franchise sales people often found it difficult to pry people’s money out of the market. And with good reason – many investors, seeing spectacular (if speculative) returns in the market, figured in a what-goes-up-must-keep-going-up-forever mentality that all they had to do was hold on to their shares of Amazon, and they could retire millionaires in a few months. When the bubble burst, money flew out of the market – and, in many instances, into franchises.

Today’s market has seen similar flights to cash. Many investors have already fled the market, and there may be more to come. Those sitting on the sidelines will soon realise they need to put their capital to work. But given the wild gyrations of the stock market and the fear that has driven many away, it seems unlikely that many investors will be jumping back into stocks anytime soon. Again, franchises and small business ownership offer a potentially high return alternative.

Credit Crunch

The third driver of franchise sales is credit availability. This is where the current news isn’t very positive. The combination of reduced home values, reduced equity and decreased credit availability has forced some buyers to consider less expensive franchises and driven some out of the market entirely.

But even this bad news is not disastrous – at least for most franchisors. Franchise prospects that once looked at million-rand investments are still looking for franchises – only they are now looking at investments in the R500 000 range. And while franchisors with investments in the million-rand-plus range are feeling the pinch, this ‘push down’ effect is helping to offset the credit crunch for franchisors with smaller investments.
Moreover, even franchisors with large investments are still making franchise sales – and almost all of these new franchise sales are financed.

Yes, credit is tighter. But deals are still getting done. Today’s lenders are looking for a better quality borrower. Today’s lenders are also looking for at least 30% equity participation in franchise purchases. Again, several years ago, franchisees could purchase franchises with as little as 10% of the equity needed. Banks are also looking more closely at things like non-business collateral, the experience of the prospective franchisee and whether the household will have a secondary income during the business start-up.

The Upside

Even this bad news has a silver lining. First, it means that franchisees qualifying for credit today are less likely to be at risk if their business performs below expectations as it builds a customer base. Second, credit crunches are typically short-term events. Most knowledgeable observers will agree that it is not a question of if but rather how soon credit will start to ease substantially for people looking to invest in small businesses.

Perhaps equally relevant, the tide is likely to turn much more quickly relative to credit than it will for either employment or for renewed confidence in the stock market. Add a dash of pent up demand, and when this happens, the economy will be poised for a franchise explosion. When this might happen is impossible to say, but savvy franchisors are planning now to capitalise on it.

As a franchise consultant since 1985, Mark Siebert founded the iFranchise Group, a franchise consulting firm, in 1999. During his career, Mark has personally assisted more than 30 Fortune 1000 companies and over 200 startup franchisors. He regularly conducts workshops and seminars on franchising around the world. For more than a decade, Mark also has been actively involved in assisting U.S. franchisors in expanding abroad. In 2001, he co-founded Franchise Investors Inc., an investment firm specializing in franchise companies. He's on the board of directors of the American Association of Franchisees and Dealers and the board of advisors to Connections for Community Ownership, which encourages minority business and job development through franchising.

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Spur’s Got A Taste For Success

With eight brands across five countries, the Spur Corp’s secret sauce to success has all the best ingredients — most importantly, its franchisees. Sacha du Plessis, Group Marketing Executive at Spur Corporation, explains the company’s 51-year journey in creating some of the most popular places to eat the world over.

Nedbank Franchising

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What is the biggest contributor to Spur’s success?

Since the beginning, we’ve made an unwavering commitment to run restaurants that are operated by entrepreneurially-minded owners who put the customer first. Customer satisfaction is one of Spur Corporation’s most important value drivers, we partner with people who ensure we retain and grow a loyal customer base. We seek to work with franchisees who take pride in the training of their staff and prepare food with passion.

This mindset has been alive for over 50 years in our staff and franchisees.

Please share some of the challenges Spur encounters as a franchisor?

We have a sizable franchise network and a big priority is to ensure that we meet customers’ expectations in every single franchise they visit. Another challenge is finding the best franchisees to partner with, people who are aligned with our company values and customer orientation.

In terms of growth, it is sometimes challenging to find the correct locations per brand and to ensure the rental is at a level where it’s sustainable for the franchisee. The management of our marketing communication to ensure we remain relevant and distinctive in an ever changing landscape can also be a challenge.

Related: A Three-Pronged Approach To Franchise Success

Name a few of the qualities you look for when selecting franchisees?

Our business was built on a highly focused customer orientation and centred on a love for food. Our franchisees need to be focused on the customer: Pleasing the customer, meeting the customers’ needs and being willing to spend large amounts of time in growing a business that essentially is the hospitality industry and is really about people. Our franchisees are people who have an appreciation for, and love, food as well as serving their local community over and above their product.

Why is Spur a solid investment for entrepreneurs seeking to pursue franchising?

We’ve invested greatly in growing our brand over a long period of time. Spur was founded by our Executive Chairman Allen Ambor in the spirit of entrepreneurship. Over the past 51 years, we’ve built a track-record of comprehensive operational, finance, marketing, IT, training, procurement, distribution and development support. Our marketing approach grows sustainable brands in a considered and well researched manner.

Our customer scope is broad, so while our main brands are focused on the wider South African market, we also have niche brands. This track record reassures the franchisee and broader market about Spur Corporation’s credibility.

What kind of support can a franchisee expect when joining Spur?

Franchisees can tap into expertise that’s been built up over five decades. We provide franchisees with the most effective tools to help manage and sustain their businesses successfully. Our operational support is wide-reaching and includes access to procurement, development, logistical as well as IT support. Skills development is one of the most important ways in which Spur Corporation supports its franchisees to run successful businesses.

Marketing support enables franchisees to actively identify opportunities and get assistance in developing and implementing bespoke marketing plans for each restaurant. Most importantly, when a franchisee joins Spur Group he or she gets access to cutting-edge management know-how from an experienced team of people who are passionate about our business.

Related: Nedbank’s Full Service Offering for Franchise Owners 

Why is it important for successful franchises such as yours to have a strong banking partner and how does it benefit the franchisee?

Buying into a brand is a substantial investment for a franchisee, so they need a banking partner that will help with financial planning and running the business. Nedbank has built relationships with franchisees while helping to open and maintain their businesses.

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Muscle And Grill Is Your Daily Chef. We Provide Fresh, Nutritional Food At Affordable Prices

It isn’t always easy to stay in tune with both body and mind. We do all the prepping for you so that you can keep up your pursuit of greatness.

Muscle and Grill

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Vital stats

Muscle and Grill is a healthy fast food establishment based in South Africa. In the face of modern South Africa, lives spent on the go require a fuel to match their aspirations while maintaining a delicious, fast and fresh service.

As our lives swirl into life’s vast depths of opportunity, our bodies are often the product of poor health habits, while trying to keep on the move to achieve our goals. Muscle and Grill challenges this. We want to be able to support the South Africa of tomorrow by offering the food your body needs to keep reaching new heights – to keep pushing the boundaries of accomplishment with health food convenience.

At Muscle and Grill we’ve got you covered. We provide nutritional fast food that is fresh and affordable. We have your health at heart. You could start your day off with some free-range scrambled eggs or fresh oats – for lunch a mixed bowl of rice, protein and fresh vegetables – or to round off your day, replenish your mind and body with a hearty health-infused burger and all its wholesome goodness. We have not forgotten that home constitutes a hungry family who have all been active, so grab a lean beef pasta salad with some greens on the side to go.

Related: SA Fast Food Franchising On The Rise

It isn’t always easy to stay in tune with both body and mind. We do all the prepping for you so that you can keep up your pursuit of greatness.

About us

It was once said that great ideas are born from ones’ frustrations. That is exactly how Muscle and Grill came about. Having no real on-the-go option to stay healthy, or having the time to prepare to be healthy, became a huge frustration for us. We struggled to find enough hours in the day to keep up with a busy lifestyle and still eat healthy while on the move. Our work came first and our lifestyles suffered.

The vision for Muscle and Grill is to make it possible to stay healthy on the go. We want healthy food to be easily accessible for all walks of life.

Our mission is to provide quality, healthy fast-food. The food we provide is delicious and will keep you coming back for more.

Concept

muscle-and-grill

Muscle and Grill works on an almost self-service basis. The point of sale system is customer operated where you can select what meal you would like to have. Once payment has been processed electronically the kitchen staff will receive the order and prepare it to spec. Muscle and Grill will be a completely cashless business, making it super-efficient for consumers and business owners.

Related: 3 Crucial Considerations For New Multi-unit Franchisees

The concept of Muscle and Grill is partnered with Puré Frooty. Puré Frooty is a self-service smoothie bar which prepares smoothies for you at the touch of a button. You can have a store with or without a machine – the choice is yours. Both concepts look to promote the idea of healthy living on the go.

We’ve looked to compliment our values by looking after that which grounds us. Our packaging and utensils are all eco-friendly, as we believe ‘going-green’ is not just a choice of eating but of the environment too.

So, when you are ready to join the next revolution in the fast food industry contact Muscle and Grill at info@muscleandgrill.co.za or visit the website at www.muscleandgrill.co.za to inquire on our franchise options today. Achieve your goals, stay on the move and look after yourself through Muscle and Grill.

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Nando’s Is Firing Up The East

Carlos Duarte has been part of the Nando’s brand since inception. When his brother Fernando co-founded the flamed grilled chicken brand in 1987, Carlos soon participated in its success and today owns four highly successful franchises in Johannesburg — three in the east and one in the south. Here’s how it all began.

Nedbank

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Vital Stats

  • Player: Carlos Duarte
  • Franchise: Nando’s
  • Position: Franchisee
  • Visit: www.nandos.co.za

What were you doing before becoming a franchisee?

I was in the audio visual technology field, as an employee. Then I joined Nando’s as an assistant manager in the Savoy and Rosettenville corporate stores. Franchising was my first experience of entrepreneurship.

Why did you decide to become a franchisee?

When my brother, Fernando Duarte, launched Nando’s in 1987, I noticed its quick growth and wanted in on the action. Being assistant store manager prepared me for when the opportunity to run my own store came along soon after.

What prompted you to partner with Nando’s?

I joined Nando’s in 1991 as a joint venture partner. At the time, Nando’s hadn’t yet franchised its operations, and the JV partnership meant the brand owned 51% of the business, while I owned 49%. My first franchise store was in Edenglen in 2001.

Related: (Watch) Why Nando’s Is Clucking Its Way To The Top

Describe some of the challenges of running not one, but four franchise locations

At the Edenglen store, we initially battled with sales and getting feet into the store. To be honest, I think the area was overtraded at the time, so it wasn’t the best location. Since acquiring the store in Lambton, Germiston, another in Greenstone and a third in Comaro, I’ve learnt to be cleverer in how I do things — and how I handle some of the same challenges — and learn every day from the brand itself.

Name some of the benefits you’ve experienced as a Nando’s franchisee

Nando’s is 31 years old this year. We’re in 30-odd countries worldwide with thousands of stores across the globe. As franchisees, we leverage off the dynamism of an operational business that’s known for its marketing — customers talk about our ads and they love our food.

What kind of support do you receive from Nando’s as a multi-unit franchisee?

Besides the popular marketing campaigns that attract customers, Nando’s has an extensive training manual along with a skills development training consultant who comes to the store for two days to help staff understand and implement it. The training is really effective — it has to be as this industry involves a very high turnover of staff and new skills need to be taught often.

Why is it important for a franchisee to have a good banking partner?

As a franchisee, your bank should understand your business — from operating costs, to overdraft needs and revamping expenses — so it has cash available for loans that can be approved quickly, with minimal hassle. On the technical side, a reliable mPOS device is imperative, especially for us, because 30% of our sales volumes are from home and office deliveries. It’s a fundamental method of payment every bank should provide its customers of a similar nature.


What advice do you have for budding franchisees on seeking out a good franchise brand and banking partner for their business?

  • Do your research to ensure you’re partnering with a brand that is established, well-known and expect to pay a fair price for that franchise.
  • Be aware of how the franchise brand is perceived in the market and what location opportunities are available to you as a franchisee.
  • Choose a banking facility that always has the funds available to grow your business.
  • Ensure the bank understands the brand’s business model and where you’re falling short.

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