Franchising | February 2010 | By Karen Spencer

Franchising in 2010

Following a tumultuous 2009, what is going to happen to franchising this year?

Industry experts think old strategies of franchising will be replaced in 2010.
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Each year, some companies prosper and others fail, but 2009 was definitely the year that tipped the scales in franchising—and not in a good way. We watched as more companies experienced their toughest times with lead generation for franchise sales, difficulties with franchisee relations, tougher supplier negotiations, and negative consumer sales. Franchise companies were hit from all sides, and no one was exempt.

That brings us to the biggest question about franchising: What is really going to happen in 2010?

For us to really understand or predict what is going to happen, we could poll many opinions. These thoughts could come from the banking and lending companies, the franchise companies, industry executives, brokers, or consultants in the industry. Yes, each may have valuable opinions and substantial data to make such comments. But I ask you, are they the real source to learn what will happen to franchising?

I encourage you to look at a different source for information this year. Why? Because we no longer have the luxury to sell franchises or support franchisees as we have in the past. 2009 proved above all that the old ways do not work anymore.

So who is it that can tell us what is going to happen, and provide guidance on how franchisors need to evolve and improve? How about the franchise owners? As last year unfolded, I felt that we had to hear from franchisees, who hold a direct lifeline to growth for all franchise systems.

Since I actually spent more time with franchisees in the early part of my career than I did my corporate partners, this past summer I went back to the land of the franchisees. Instead of attending some industry meetings or spending time speaking at conferences, we went to smaller meetings and locally organized meetings, traveled, and had fun with franchisees. We connected again with small, mom-and-pop owners and large, multi-unit developers. It was clear that to truly understand what was going to happen this year, the answers could no longer come from the sources that we had leaned on previously.

We no longer have the luxury to sell franchises or support franchisees as we have in the past. 2009 proved above all that the old ways do not work anymore.

What did we hear? In 2010, franchisees are not going to do business as they have in the past, either.

Here are our top three thoughts about changes to franchising in 2010:

New franchisees will enter the market through transfers of ownership. The legacy and older franchisees with no generation behind them will split up their units (if they have a high multiple) and sell to newer franchisees. Traditionally, the focus has been “the new franchise sale”—new restaurant growth. This is always a good strategy. However, the resale was basically ignored for the most part. In many companies, the team handling transfers of ownership (selling a current restaurant) was not part of the franchise sales team and not trained extensively to handle these types of transactions. In order to sign the best franchisees, franchise companies must be not only ready for this, but proactive about it. An example: Burger King has put a key person in place to oversee these types of sales.

A higher level of education will be demanded (and needed for future success). It will not just be about what support the franchise offers. The franchisees that stay in the system are going to push companies to revamp their training and support. The new franchisees want this as well. Both types of franchisees are more technology savvy than ever before, and will be more abreast of the latest developments and how to e-communicate to other franchisees. They will demand more business training. An example: Our company had an increase in 2009 of over 150 percent in requests to conduct our Educational Programs to franchisors and franchisees as an outsource vendor versus conducting these in-house.

The marketing jobs will be back—in a new way. Companies will need to focus on increased marketing activities and new areas of marketing. More experience (and I mean real experience) in social media will be needed. An example: One vendor to the industry (not a marketing company) held free conferences in 2009 for their clients and non-clients about social media issues.

Actually, 2010 is shaping up to be a great year. We may truly be back to the focus being about operations in the restaurant industry, and not just selling franchises.