Franchising Could Be the Secret to Reaping the Rewards of a Down Economy. Here Are 5 Reasons Why.
Recession and inflation are leading to benefits for franchisees.
Listen to the news, read the paper or scroll the headlines on your phone these days and it's all gloom and doom. Inflation is up, the economy is in recession and times are tough. But where others see disaster, I see opportunity.
Instead of panicking, smart investors and entrepreneurs invest in a down market when prices are low and the opportunity for future returns is high.
Risk-tolerant people understand that the economy is cyclical and that if you have the means to buy during a downturn you can reap strong rewards. Whether you currently have a franchise or are considering becoming a franchisee, here are five reasons to be bullish about the current situation.
During challenging times, businesses go under. This leads to real estate opportunities on multiple fronts. First, there are more spaces open for conversions. A conversion can save hundreds of thousands of dollars over a new build-out.
A down market also means that landlords are in a negotiating mood. For a developer to continue to get funding, their current properties need to maintain a certain occupancy level. Now is the time for new franchisees, and franchisees with existing leases, to negotiate concessions and better terms.
In 2021 47.8 million workers quit their jobs, with food service workers leading the exodus with a seven percent quit rate. Historically during a recession, workers seek security and are less likely to leave a job. The recession will slow the revolving staff door that so many restaurateurs have struggled with over the past two years.
It also means as businesses close, now is the time to find top talent looking for a new opportunity.
During challenging times, the first area businesses pull back on is marketing, and that is exactly the wrong thing to do. This is the time to double down on marketing and see big payoffs. Because it's cheaper to retain a customer than get a new one, a down economy is the time to market to your existing guests to entice them to come in. If you run a restaurant, the good thing is that everyone needs to eat, regardless of the economy. Give your current customers reasons to walk in your door, like a new menu item, targeted LTO or special offer.
When competitors go out of business, it's the time to capitalize by turning their customers into yours. Create a competitor campaign in Google Ads using their keywords and URLs and direct their customers to a landing page offering a targeted promotion, like a free drink or BOGO. Advertise on social media using location and demographic filters. Monitor the competitor's social accounts and respond to posts suggesting your business as an alternative for consumers.
While supply chain issues continue, a down economy means vendors are more cognizant of keeping their existing customers. Now is the time to strengthen relationships with suppliers and negotiate better rates. During the pandemic, we saw that businesses with strong relationships with vendors were better able to manage supply chain disruptions because they knew in advance they were coming.
Since the pandemic, food costs have skyrocketed. Now there is finally some good news. According to a November report by Maloni Intelligence, wholesale food costs are dropping. Last year a pound of chicken breast was $1.907, and in Oct. 2022 it was $1.177. A case of Haas avocados last year was $41.721 and last month it was $27.243.
No matter what the economy is doing, savvy entrepreneurs can make money, and franchising is one of the safest ways to do it. Historically the stock market returns eight percent a year. Multi-unit restaurant franchisees can easily have 40-50% ROI a year. The key right now is to manage cash flow, capitalize on opportunities and get ready to reap the rewards when the natural economic cycle turns to an up market.
Entrepreneur Editors' Picks
This Co-Founder Was Kicked Out of Retailers for Pitching a 'Taboo' Beauty Product. Now, Her Multi-Million-Dollar Company Sells It for More Than $20 an Ounce.
Have You Ever Obsessed Over 'What If'? According to Scientists, You Don't Actually Know What Would Have Fixed Everything.
After He Was Fired From the UFC, This Former Fighter Turned His Passion Into a Thriving Business
Most People Don't Know These 2 Things Are Resume Red Flags. A Career Expert Reveals How to Work Around Them.