When you break it down, franchising is simply a proven method of distributing products or services. But franchising happens to be a business approach that is booming at a time the rest of the U.S. economy is treading water.
"The franchise sector continues to grow adding 184,000 jobs over the past 12 months," said International Franchise Association President & CEO Steve Caldeira.
The IFA recently rolled out its glowing 3rd Quarter Franchise Forecast for 2013.
Highlights of the report:
- The franchise sector accounted for roughly 10% of all new jobs over the past 18 months – that boosts the total jobs in the industry to more than 8 million.
- Over the past year alone, the franchise sector has added new jobs in industries such as business and personal services, restaurants, automobile, education and manufacturing.
- In 2013, the franchise sector is expected to grow twice as fast as the rest of the economy.
- The franchise sector directly and indirectly supports more than 18 million jobs overall.
The IFA says there are at least two levels of people involved in a franchise system. There is the franchisor – the man or woman who lends a trademark or trade name and a business system. Then there’s the franchisee – the man or woman who pays a royalty and often an initial fee for the right to do business, using the franchisor's name and system.
The term franchise is often associated with some of the most popular fast food joints. But there are more than 75 industries that operate within the franchising format. The IFA's membership and network includes about 1,000 franchisors, 350 suppliers, and more than 7,000 franchisee members.
According to Entrepreneur.com, the top 10 franchises for 2013 are Hampton Hotels, Subway, Jiffy Lube, 7-Eleven, Supercuts, Anytime Fitness, Servpro, Denny's, McDonald's and Pizza Hut.
During my recent conversation with Alisa Harrison, Senior Vice President of Communications and Marketing for IFA, I learned about the latest opportunities in the franchising industry.
With the youngest members of the so-called Baby Boomer segment of the population hitting their 50s, there’s a growing demand for companion care, assisted living, in-home care and transportation. Franchisers are hustling to fill this void.
“It’s an aging population,” Alisa told me. “People want to live longer and live better. That’s why you’re seeing franchises pop up for 24-hour fitness, massage and more. The Baby Boomers are starting to take care of themselves now. And that makes for a healthier marketplace for franchisors.”
Another hot franchising trend centers on “faster than fast food.”
Food trucks have gone high-tech to serve up breakfast, lunch and dinner in a flash. Even established brick-and-mortar franchises such as Chick-fil-A are looking at food trucks to serve a hungry client base even faster – and they’re doing so with a diverse offering of food opportunities.
Busy office workers are able to leave their desk, grab a bite, and get back to work in minutes rather than the traditional hour. Food trucks are a lower overhead way to serve more customers more food more quickly.
Alisa says all franchising categories are on the rebound. Even lodging is getting better as evidenced by Hampton Hotels grabbing the number one spot on this year’s top-10 list.
Because the franchisor has already perfected daily operations through trial and error, new franchisees can avoid many of the mistakes start-up entrepreneurs typically make.
But you still need to do your homework. Start with interviews of the franchisor and a few franchisees. Then, examine the Uniform Franchise Offering Circular (UFOC), franchise agreement, and the audited financial statements. Finally, pore through an earnings-claim statement or profit-and-loss statement, trade-area surveys, list of current franchisees, newspaper and magazine articles, and a list of the franchisor's current assets and liabilities.
So, what trends are trending in the world of franchising?
The IFA says it’s the…
- internationalization of franchising,
- emergence of women and minorities in franchising, and
- increased use of technology.
More than 400 U.S. franchise systems operate internationally. Consumers from Poland to Peru recognize famous brands as symbols of quality, consistency, service and value.
Franchising provides a means to overcome traditional obstacles faced by women and minorities: a lack of business experience and capital. Most franchisors offer ongoing training and assistance. Some will even work out property leases, and provide financing for equipment and the franchise itself.
The Internet plays a critical role in the success of a franchise. Many franchisors use the Internet to communicate with franchise owners and suppliers – and to share critical information and expertise. The Internet is also a great place to advertise to customers. Some franchisors find they get more sales leads from the Internet than from any other source.
Be warned: Franchising does provide wonderful opportunities for business growth, but it does not work miracles.
McDonald’s has been long-known for its golden arches and golden profits, but even this franchise may be losing favor with U.S. customers. Just this past month, McDonald's warned that "global sales at established restaurants would be relatively flat in October and signaled that weakness would continue in the fourth quarter because of stiff competition and a halting economic recovery."
Franchising is not for the faint hearted. Consumers can be fickle and today’s red-hot commodity may be tomorrow’s bust.
But, you can limit your risk through thorough research, smart investing and hard work.
