What the Future Holds
A franchising expert discusses what 2003 has in store for the industry.
For the past 12 years, Jerry Wilkerson, president and founder of Franchise Recruiters, a Crete, Illinois, franchise executive search firm, has conducted the Franchise Business Forecast and Trend Analysis survey. Based on interviews with about 100 franchise executives as well as growth statistics and other data, the study looks at where franchising growth will occur, what products and services will be popular, and who will be buying franchises in the coming year.
Franchise Zone spoke with Wilkerson about his annual survey and broke his findings down into major points that most affect current and prospective franchisees.
Who's Buying Now
"In the past 12 to 18 months, many people who have the inclination and the money on the sidelines have not made the decision to do much of anything with it. They haven't put it back into the market for obvious reasons--they've been waiting to make a decision how they're going to structure their future, and many of them will be going into franchising this year. We're going to see a pretty good group of people who have had cash on the sidelines, who are structurally stronger than some of the candidates in the past, because they have business experience and the inclination to work. They know the value of the dollar and what it takes to make it, and they're going to be buying businesses, so they can control their future, moreso this year than I've ever seen in the past.
"[Franchising], from what we can decipher, is ripe for new development. Job advancements in the corporations are iffy, raises are limited and workers virtually do not have job security in corporations today. The low interest rates, investment cash on the sideline and the dire need for jobs present a great climate for franchising to flourish this year. Good, smart, savvy franchisors are finding new franchisees in some fascinating environments, in ways I've never seen before--in clubs and organizations, churches and libraries, job consulting centers and educational facilities. And much of this is white collar. We haven't seen these kinds of numbers in white collars in the past, even in the early '90s recession. These neighborhood-based organizations are providing excellent new sources for qualified, innovative franchise sales.
"If you ask [prospective franchisees] what they're looking for, they'll tell you they'd like to find a business that's similar to their style, their way of living, their qualities, their values and their character. Most people today want to align themselves with franchisors that are like-minded. They're looking for, on most occasions, smaller, more medium-sized organizations. They're shopping much more carefully, asking questions, doing their due diligence, bringing their attorneys and accountants into it. These are very, very smart new franchisees, and we're going to be better because of that. Systems will be stronger and inherently grow more solidly with this type of franchisee involved."
Older Boomers with New Ideas
"The population over 50 years of age has $750 billion in buying power and control three-quarters of the country's financial assets. Many of those are boomers who will go into franchising and rebuild Main Street America, the downtown areas of their communities, their neighborhoods.
Rebuilding the Inner City
"Retailers and franchisors are going to be looking at the inner city and what I call the borderland between cities and suburbs. The inner cities are ravenous for fundamental services and retail, and some of the smart franchisors are starting to focus their expansion on these areas. Locations are available with very good landlord support, and today you can negotiate great lease terms and rehabilitation of those properties.
"This is happening in many metropolitan communities. The Chicago Tribune had a front page story about how the inner city is starting to be rebuilt by people who used to live there and have come back. They're taking the risks, and the risks are enhanced by many of the local, state and federal tax abatement programs or hiring programs. And franchisors that understand how these things work are getting on that train very quickly. The local communities have all these special tax credit programs underway, and they're looking for people to come back into these communities. Franchisors are starting to work hand-in-hand with these types of municipal organizations and taxing bodies to help rebuild those communities. I'm not saying the inner city is going to be a mecca, but the adjacent areas are where we're going to see some of that growth and development. Those were at one time somewhat blighted, and they need these services. There's a market for this."
Rise of Multiunit Franchisees
"For franchisors, it's better to have 10 headaches than 100. If you've got 10 franchisees who own 10 units each, your operational headaches are reduced. If you have fewer people building more units, you're also going to have a stronger system, because you only have to be responsible to those numbers. If there are 100 franchisees with one unit each, it starts to become unwieldy as far as a system goes, and it takes longer for the system to grow.
"People who are in business and know how to grow businesses make better franchisees. That doesn't mean there's not room or a place for the mom-and-pops--there is, and there always will be. But the best-case scenario is fewer investors with multiple-unit development agreements being built out on a timeline calendar. That calendar is enforced, because other franchisees want to make sure that system is as strong as they are."
Cobranding Catches On
"The cobranding trend is going to continue, and we'll see some of the major systems start to buy out some of the smaller systems that have a very strong niche, regional presence. That makes [these smaller systems] very powerful overnight.
"This trend also cuts out an investor. There's a whole layer of investors who aren't going to be approved at that level. They'll have to go to another system that still allows for people to buy one or two units at a time."
Making the Upgrade
"[Franchisees] were on the leading edge about five years ago, because technology fits so well with franchise models like point of purchase, restocking, training, communications, employment. Technology brought solutions to the marketplace, and franchising really got on that [track] quickly.
"This year, we're watching every dollar and trying to reduce anything we can and still provide the services and the products to the consumer without increases in prices. Everything is so price point conscious today, and the consumer is extremely fickle. So franchises are not as inclined this year to start changing and upgrading their technology, but by the time next year rolls around, they're going to have to."