Inflation Threatens 87% of Franchisees — Here Are the Ways They're Fighting Back From soaring labor costs to escalating supply prices, franchise owners are facing significant economic challenges, mostly due to inflation.
By Carl Stoffers Edited by Jessica Thomas
Key Takeaways
- According to the 2024 IFA Annual Franchisee Survey, 87% of franchisees report that inflation is having a moderate to severe impact on their bottom lines.
- Industries such as food and personal services, where profit margins are already slim, are feeling the inflationary squeeze more acutely.
- Despite the economic issues, many franchisees are adapting to the new reality.
Franchisees across the country are feeling the squeeze of rising costs, with 87% reporting that inflation is impacting their bottom line, according to the 2024 IFA Annual Franchisee Survey. From soaring labor costs to escalating supply prices, franchise owners face significant economic issues.
But amid these challenges, many are finding creative solutions — from leveraging new technologies to adjusting pricing strategies — to keep their businesses afloat. Here's how they're navigating the storm.
Inflation impact
Inflation has hit franchisees hard in 2024, with 87% reporting moderate to severe impacts on their businesses, according to the IFA data. Eighty percent of franchisees reported lower business earnings in the past year. Rising costs in supplies, insurance and other operational expenses particularly affect industries like food and personal services, where margins are already thin.
Franchisees in these sectors are grappling with increased prices for inventory, ingredients and necessary supplies, putting pressure on profits. Many have had to raise prices or cut back on services to maintain viability, underscoring inflation's significant toll on their operations.
This inflationary squeeze forces franchise owners to find ways to offset costs, such as streamlining operations and introducing technological innovations.
Related: See Entrepreneur's 2024 Top Franchise Suppliers List
Labor challenges
While labor shortages are beginning to ease — 47% of respondents cited labor as a significant challenge in 2023 vs. 26% in 2024 — franchisees are still grappling with high labor retention costs, particularly in providing healthcare benefits and maintaining competitive wages, the IFA study found.
Even with a larger pool of potential employees, compensation remains a significant challenge. Many franchise owners find that balancing competitive pay with rising operational costs is a tightrope, and inflationary pressures exacerbate the pressure to retain staff.
In addition to healthcare, the rising expenses for inventory, supplies and marketing have increased costs. The food sector has been the hardest hit by inflation, followed by personal services and commercial/residential services.
Related: Don't Have Time to Start a Business? This Doctor, Lawyer and Now Part-Time Franchisee Would Disagree.
Franchisees adapting
The IFA study found that franchisees are responding to these challenges with various innovative strategies. Many are turning to technology to reduce costs, such as automating administrative tasks, introducing self-service kiosks or leveraging data analytics to streamline operations.
Franchise networks are also sharing best practices, from adjusting pricing strategies to bulk purchasing of supplies to offset inflationary pressures. Some franchisees have been able to pass on price increases to consumers, while others are focusing on optimizing operations to stay profitable.
