In a March 2020 online survey, FranConnect, the leading provider of franchise management platform solutions, found approximately two-thirds of franchisors are actively moving forward with franchise sales efforts despite the paralyzing impact of the COVID-19 crisis in anticipation of an influx of Americans looking for business opportunities as unemployment soars.
FranConnect surveyed 233 executives of franchise brands to quantify the impact of the COVID-19 pandemic on the franchising industry. The survey shows how franchise businesses of different sizes and in different sectors are reacting through changes to their strategy and operations. Among the key findings:
FranConnect found nearly all brands surveyed in business services (86%) and commercial and residential services (89%) are continuing their sales efforts;
However, 75% of full-service restaurants — one of the hardest-hit segments over the last month — reported halting franchise sales.
Over half of micro-emerging brands (under 25 locations) surveyed stated they’ve stopped their franchise sales efforts, compared to only 16% of those with between 100 and 500 units.
“Based on our survey results, COVID-19 has had the most significant impact on the restaurant industry and personal services segment, so it’s not surprising to see franchisors scaling back or temporarily ceasing their franchise sales programs. As 67% of franchisors in our survey expect system sales to return to pre-pandemic levels in about six months, a conservative approach to new growth makes sense,” said Keith Gerson, President of Franchise Operations, FranConnect. “However, other segments that haven’t seen nearly the same degree of revenue decline are continuing their recruitment efforts. Historically, when unemployment begins to grow, many franchisors see increased interest in their franchise opportunity. There’s a historic perspective that as the job market softens and Americans no longer have confidence in their current employment situation, many may want the security of being their own bosses.”
According to FranConnect’s survey, franchisors remain optimistic for a quick recovery. Despite many brands feeling the impact of government-mandated closures, nearly half (48%) anticipate locations will reopen within two months and two-thirds (67%) expect system sales recovery within six months. System size did not seem to change the feelings around the length of time the closures would last or the expected recovery timeframe.
“Through recessions, natural disasters, and other widespread crises, we’ve continued to see the resiliency of the franchise business model and the benefits of being in business for yourself, but not by yourself. Franchisors and franchisees have benefited greatly from sharing best practices with each other, enabling them to endure the crisis,” says Catherine Monson, Chair of the International Franchise Association (IFA) and CEO of FASTSIGNS International, Inc. “Although our community has never seen anything like COVID-19, I have no doubt we will come out stronger having been through this together.”
Additional survey findings showed:
Personal services brands have been the most impacted by government-mandated closures (62% of respondents have more than half or all of their locations closed), followed closely by full-service restaurants (59%).
Business services and commercial and residential services were relatively unaffected (68% have less than 10% of their system closed).
Most brands are experiencing a significant decline in sales performance, with over 75% reporting a decline of more than 20%.
Personal services, quick-service, and full-service restaurants were hit the hardest, with business services and real estate experiencing the least sales decline.
Layoffs & Furloughs
Quick-service restaurant franchisors are the most likely to have significant layoffs or furloughs, with 50% saying that such employment changes are very likely — but all industries are considering the option.
Most brands expect system sales recovery within six months (67%), but of those that do, the majority believe it will take longer than three months to get to the same place they were in February 2020.
Commercial and residential services brands expect a quick system sales recovery (50% said 1-3 months), whereas two-thirds of full-service restaurants think it will require more than six months.
Many franchisors are extending royalty support across their system (38%), but an equal percentage are not offering any royalty support (39%).
Segments that have been more impacted by the crisis are those that are most likely to offer programs like royalty reduction, specifically food and personal services.
A quarter of those surveyed expected a franchisee attrition rate of more than 25%.
Retail food and quick-serve franchisees have the highest risk of franchisee attrition, but no industry remains untouched.