As a franchise coach, it is important for me to keep my eye on the latest developments in franchising across various industries. Over the past year and a half, various factors that affect businesses and the economy have created a more uncertain atmosphere for business. The risk of a recession, combined with an upcoming U.S. election year, has led many prospects to be conservative with their investments. Yet, in the middle of this more conservative atmosphere, franchisors continue to innovate.
Cutting Costs and Casting Votes
Many of the most popular franchise options this year have low investment. Franchises that don’t come with big starting expenses, like having to buy or lease a large storefront, are the ones I see attracting the most prospects. One of the reasons prospects are being so careful with their investment dollars is the uncertain direction the economy has taken.
U.S. Bank reports the gross domestic product rose substantially in 2021, with a growth rate of 5.9% by the fourth quarter of that year. However, in early 2022, the growth rate took a nosedive in the first half of the year. It pulled out of this dive, but the rate only reached about 3% by the Q3 2022. Since then, the GDP’s growth rate has slowly declined, leading economists and businesspeople to be concerned that an economic recession is coming.
On top of the risk of a recession, 2024 is going to be an election year in the U.S., which traditionally has been a time when many markets are in flux. Depending on which party is in power, policies that affect business practices, industry regulations, and other factors may change. If nothing else, folks don’t like the prospect of change. This leads some prospects to take a wait-and-see approach.
The Value of Staying Power
Because of the above factors, recession resistance is another important quality for franchises in 2023. When it comes to resisting recession, the name of the game is indispensability. People and businesses will seek to cut costs when the economy is difficult, so the less they can afford to do without a certain product or service, the more secure the investment for prospects.
Some industries’ products and services are more liable to be on both personal and professional budget chopping blocks, such as home decoration, remodeling, and luxury travel. Meanwhile, Guidant Financial reports that other industries are likely to keep going strong in a recession. Regardless of the economy, consumers need to buy groceries, fix their car and repair a broken pipe in the house.
It’s important to note that even among the more indispensable industries, some businesses are more recession resistant than others. For example, automotive repair businesses that focus on body work might still see a dip in their revenue as people are more likely to put up with a few dings and scrapes to save money, but businesses that focus on engine repairs will remain in demand because customers will be more inclined to get their engines repaired than risk having to buy a new car.
Despite the uncertainty of the economy in the second half of 2023 and into next year, some franchisors are still willing to experiment with new business practices. One recent development I’ve seen recently is testing an absentee owner model. After the franchisee provides the initial investment, they have little oversight of the business since the franchisor handles day-to-day operations. There are also semi-absentee owner franchises, in which the owner is involved, but in a limited capacity, making routine visits to locations and actively managing their manager.
While semi-absentee and fully absentee franchises existed in the 80’s and 90’s, they were only ever popular with restaurant, hotel and salon ownerships. However, franchise infrastructural backbones has greatly improved, making it possible to set up a system to monitor business activity without having to get actively involved. This is especially appealing to businesspeople who want to hedge their bets by investing in franchise ownership while retaining their current jobs.
Overall, the jury is still out on how successful this kind of business model will be. I think absentee owner franchising is still in its experimental stage, and the next 12 months will be a proof-of-concept period for it. It will probably take an additional year or two to determine just how profitable the model can be, but if it at least proves viable, then I expect more companies will be interested in trying it out.
Watching The Dice Land
Going forward, the second half of 2023 and into 2024 will be a period when a lot of results start to emerge. We’ll find out whether the economy goes into recession or stabilizes, whether hands-off franchising models will prove viable, who will be in the White House for the next four years and what kinds of economic policies they’ll pursue. As this period approaches, many franchisees are preparing for all outcomes, while franchisors are trying out new practices that accommodate these cautious prospects. Overall, I think the next 12 months is going to be both interesting and fun to watch.
Rick Bisio is one of the country’s most respected franchise coaches and author of the Amazon best seller, The Educated Franchise – 3rd Edition. Since becoming A Franchise Coach in 2002, Bisio has assisted thousands of aspiring entrepreneurs nationwide helping them explore the dream of business ownership. www.afranchisecoach.com