I recently returned from a week-long franchise industry meeting.
Three Big Takeaways on Franchise Trends in 2022:
Labor is no bigger a challenge than it’s always been, it’s just handled differently.
Manager-run options are becoming more plentiful.
Capital companies are investing in franchises like we’ve never before imagined.
Labor is no bigger a challenge than it’s always been, it’s just handled differently.
The flow-through numbers of prospect names-to-applications-to-interviews-to-hires-to-retention really haven’t changed that much. The same biggest problem for business owners/operators during my earliest days in business is the same biggest problem experienced today. Some franchisees address it head-on, and others don’t. The data says that employee attraction and retention is a behavior-driven event, led by the business owner, the SBU leader, or the division or office manager. The same behavioral approach that allowed me to drop my employee turnover rate from 84% to 14% from one quarter to the next still applies today.
Employees have always wanted the same things: fair set expectations with suitable challenges and rewards, an upwardly mobile path, honest communication, appreciation, and respect… only now employers are being forced to provide it to them, or the employer will struggle or fail. Imagine that…?!
Note: Comparing the two quarters when my employee turnover rate was cut from 6/7 to 1/7 in the course of just 3 months, the labor hours I paid decreased by more than 12%, but the revenue I brought in increased by over 8%! Employees made more money during fewer hours of work, while my business made more money in less time.
Manager-run options are becoming more plentiful.
In 2015, there were only a few “good” manager-run franchise options that required less than $250K ($100K of which would be cash) in total investment. Today, the number of those options is booming! Systems have been improved upon repeatedly, and new executive-minded franchisees (people like you) have continued to exercise proven franchise business systems provided by the franchisor, while also implementing new ideas in small chunks to find the complete package that works for them. Validation is strong for such in the same old storefronts (read: higher investment at $250K or greater) where it’s always been strong, but manager-run success is now also being proven repeatedly in non-storefront, service-based businesses where customers are plentiful, prices are fair, wages are strong, and EBITDAs are very attractive.
Capital companies are investing in franchises like we’ve never before imagined.
They are contributing millions of dollars to staffing and support improvements the day they take over. Of my placements in 2017, only 1/6th joined a franchisor that was controlled or partially-owned by a capital company; in 2021, that result shot up to 2/5ths… from 16% up to 40% of my placements are becoming involved with franchisors supported by mega-million or billion-dollar capital companies who aim to improve financial outcomes. Great franchisors have always been investing in their people and systems, however today the changes are happening with rocket speed and in all directions.
Interested in learning more about starting a franchise?
The Franchise Guy: Navigating 2022 Franchise Industry Trends
This page provides key insights into the dynamic franchise industry landscape of 2022, curated by The Franchise Guy. It delves into significant shifts and emerging patterns that are shaping opportunities and challenges for both franchisors and franchisees. The content aims to equip prospective and current franchise owners with the knowledge needed to make strategic decisions in an evolving market.
The Franchise Guy, led by Matt Stevens, offers expert advice grounded in real-world industry experience. By analyzing data from franchise meetings and personal placements, this resource highlights critical trends such as evolving labor dynamics, the rise of manager-led operations, and unprecedented capital investment, all crucial for understanding the current state and future potential of franchising.
Understanding Labor Dynamics in Franchising
The persistent challenge of employee attraction and retention in the franchise sector is being redefined. While the fundamental desires of employees—clear expectations, growth opportunities, fair compensation, and respectful treatment—remain constant, employers are now compelled to actively address these needs to ensure business success. This shift necessitates a more strategic and behavior-driven approach to human resources management within franchise operations.
Data from The Franchise Guy's experience indicates that focusing on these employee needs can yield significant operational improvements. For instance, a reduction in employee turnover from 6/7 to 1/7 within three months led to a decrease in labor hours paid by over 12%, while simultaneously boosting revenue by more than 8%. This demonstrates that investing in employee satisfaction is not just a cost but a driver of profitability and efficiency.
The Rise of Manager-Run Franchise Opportunities
A notable trend in the franchise industry is the increasing viability and prevalence of manager-run franchise models. This development makes franchise ownership more accessible to individuals who may not wish to be actively involved in the day-to-day operations but are keen to invest and oversee business performance. These opportunities are proving successful across various sectors, including service-based businesses.
These manager-run franchises are demonstrating strong validation, not only in traditional storefront settings requiring substantial investment (often $250K or more) but also in non-storefront, service-oriented businesses. Factors contributing to their success include a plentiful customer base, competitive pricing, strong wage offerings, and attractive EBITDA margins, making them a compelling option for a new wave of franchisees.
Increased Capital Company Investment in Franchising
The franchise sector is experiencing an unprecedented surge in investment from capital companies, signaling robust growth and confidence in the industry's future. This trend indicates a significant shift in the ownership and operational structure of many franchisors, with private equity and other investment firms playing a more prominent role.
The impact of this capital influx is substantial. For example, The Franchise Guy observed that the proportion of placements joining franchisors controlled or partially owned by capital companies rose dramatically from 16% in 2017 to 40% in 2021. This indicates that mega-million and billion-dollar capital companies are increasingly targeting franchises with the aim of enhancing financial outcomes and driving expansion.
Navigating Franchise Opportunities with The Franchise Guy
For individuals interested in exploring franchise ownership, understanding these evolving industry trends is paramount. The Franchise Guy provides expert guidance to help potential franchisees identify opportunities that align with their investment goals, operational preferences, and the current market dynamics. Leveraging this knowledge can lead to more informed and successful franchise investments.
Whether you are considering a traditional brick-and-mortar franchise or a more flexible manager-run model, The Franchise Guy offers personalized consultation to navigate the complexities of the franchise landscape. By staying abreast of trends like labor management innovations and capital company involvement, clients can make strategic decisions that position them for long-term success in their chosen franchise venture.
