The IFA’s published “outlook” for 2018 called for the addition of nearly 14,000 new franchises. In the near future, we’ll learn the actuals and get a glimpse of their 2019 “outlook”. Over the past 60 days, I’ve reviewed franchise documentation for 150 franchises, spoken with dozens of franchise owners, and met with representatives of >100 franchisors at a recent conference. In addition to getting the latest updates on many concepts, checking the pulse of a diverse group of franchise owners, I observed several notable trends: Optimism, Boutique, “Basics”, Technology. Here’s my take on the state of franchising, January 2019.
Franchisors:
From a franchisor standpoint, all have set goals to open & sign more new units than last year (no surprises there). Franchisor optimism, in every respect, is palpable. As some existing franchise systems grew and matured, a host of totally new franchise concepts have been brought to market recently. Many of these new concepts were created by teams including previously successful franchisors. Some are coming out of the gate fast, establishing strategically placed corporate locations, ramping-them-up, using them as showcase/training and “test” locations (I’m a fan of this approach – proof of concept is on them, not a franchisee).
In a few instances, franchisors are selling corporate locations to create instant franchisees and redeploy the funds into developing their presence in new markets. The vast majority are focused on growing by franchising vs company-owned locations. Finally, there’s a continuing trend of recruiting multi-unit/territory franchisees. While many franchisors still sell single-unit/territories, their focus is on cultivating a franchisee base with larger presence (scale) in their markets. This is a tactic that every franchisor ultimately pursues. The interesting part of some of the newest franchise entrants is that some are exclusively pursuing multi-unit/territory franchisees.
Technology is being leveraged to create competitive advantage for brands/franchises, as well as to be responsive to consumer’s insatiable demand for convenience and speed. Mobile Apps are being used to engage and serve consumers, provide a loyalty platform, stimulate incremental demand via exclusive app-based promotions. Franchisors are also using apps and POS systems to collect more consumer and unit level performance data to track product/service offerings, identify best practices, recognize top performers and coach franchisees toward higher performance.
Growth Drivers:
In 2019, favorable economic conditions are expected to persist. Employers will leverage technology to continue automating, streamlining (simplifying) and out-sourcing functions that are not their core competencies, all in an effort to anticipate disruption and take pre-emptive actions. In doing so, employers will restructure, redeploy and/or reduce workforces. Some employees will have the choice whether to re-train for new roles with employers, pursue jobs elsewhere, and/or explore becoming entrepreneurs through franchising. Whether “pushed” or “prodded” toward it, franchising’s proven models, systems, brands will enable former employees with entrepreneurial aspirations to remain relevant, productive and thrive in new ways.
A considerable portion of new franchise growth will be propelled by concepts fulfilling “basic” needs. These have also been labeled “recession-resistant” and, are less than glamorous. A sampling includes junk removal, plumbing, handyman services, window cleaning, property management, disaster recovery, etc.. The need for these “basic” services by consumers and small businesses also reflects demographic shifts where younger generations and aging populations have a propensity to pay others to do things for them vs. DIY.
Also fueling growth are private equity, angel investors and franchisors with strong balance sheets. They’re deploying capital to acquire complementary franchise systems to drive “strategic growth.” Some are creating (or expanding) “families of brands” to fuel accelerated growth, create operating efficiencies and improved profitability. These strategic initiatives may or may not include “branding activities,” such as the recent establishment of the “Neighborly” family of brands, and others, which will lend to cross-brand consumer-facing promotions.
Concepts:
In a n environment of continued economic growth, franchises will continue to prosper and enjoy unit/territory growth. The segments/concepts below reflect my observations on where a substantial portion of 2019 franchise growth will occur.
HEALTH/BEAUTY/PERSONAL CARE:
The field of concepts in this space has exploded, and will likely continue. Most concepts are marketed to, have appeal to one gender, while others tout having attraction to both genders. From nails to lashes to hair to massage to skincare to nutrition and coaching. Some sell their own proprietary products, while others are strictly service providers. Some concepts replicate a WeWork type arrangement, whereby independent stylists, aestheticians rent space in which they operate their own business.
FITNESS:
The sheer number of fitness franchises is growing, with the bulk of the growth coming from smaller boutique concepts. These include individual offerings for pilates, cycling, barre, rowing, yoga, cross-fit, stretching, boxing and in-home fitness training. There are several franchises that also position themselves as boutique, yet they offer multiple forms of fitness training under one roof. Franchisors are evolving their prototypes to become more attractive, cost-effective and they are leveraging technology both within the space and to create strong ties with consumers. The smaller footprint concepts have ample real estate options due to retail disruption (think Amazon) driving lower occupancy rates in certain markets.
SERVICES: (Residential and Commercial)
While far from glamorous, these services are in high demand and are recession resistant due to their necessity. They include home/office cleaning, plumbing, HVAC, property management, window glass cleaning, home improvement, painting, facility maintenance, tree removal, pest management, junk removal, disaster recovery and restoration. Real estate for these businesses is minimal, can begin as home-based and evolve to light-industrial. Some involve vehicles and equipment, which are largely sourced through the franchisor’s designated providers, and are typically wrapped with brand logos to help drive local market awareness.
FAMILY RELATED SERVICES: (People and Pets)
Senior related services have grown dramatically over the past decade. Concepts in this space include in-home companion and skilled staffing, as well as referral services to care facilities. Also supporting the needs of an aging and disabled population are services that modify homes to enable people to stay in their homes. There are also staffing services supporting child care facilities and young families with home child care. Also for children, there are multiple tutoring services, and concepts dedicated to teaching children to swim. And for the canine family member, there are pet supply and training concepts.
FOOD:
This sector continues to experience substantial transformation. Consumers are continuing to favor healthier fast-casual. Capitalizing on this, we see smaller footprint retail concepts continuing to proliferate. As well, non-retail space food services are growing as businesses and families demand cost-effective prepared food offerings, delivered. Just as the retail landscape is being disrupted by online resellers, the food industry is being transformed by tech-driven platforms. Consumers and businesses increasingly expect to be able to order, pay and receive just about any kind of food at their location in minutes. Franchise concepts that can adapt to these trends will thrive – many are doing so.
About the Author:
Phil Harvey, franchise consultant and founder of Prosperity Services, is an accomplished franchise industry veteran and trusted franchise advisor. He consults with first-time and serial entrepreneurs alike, helping them find, evaluate and select the right franchise to achieve their goals. To learn more about Prosperity Services or Phil, visit his LinkedIn profile.
