By Gary Prenevost
The pandemic has redefined many aspects of consumer behaviour, both from a business-to-business (B2B) and a business-to-consumer (B2C) perspective. It has also created one unique condition that will have a positive impact on franchising for the next couple of years—a substantial surplus of cash because most Canadians have not been spending for the last 18 months.
As we progress through the late, and hopefully, final stages of the pandemic, let us look at some macro trends, and how they will impact part of the franchise landscape in the near future.
• Work-life integration;
• Self-care/Feel-good; and
As we live very busy lives, we want products and services faster, closer, with less hassle, and without compromising the quality experience. ‘Convenience’ is a macro trend that has been influencing us for some time, long before the pandemic arrived. Due to mandatory shutdowns and reduced customer capacity limits, many franchisors have worked closely with their franchisees to redefine how to provide a more convenient experience in order to retain customers and protect business volume. We know there has been a huge increase in online shopping and in-home virtual sales calls. Certainly, some of this will remain post-pandemic.
That said, it remains to be seen which redefined convenience components will still be expected by customers. Existing and would-be franchisees need to consider a number of factors, including but not limited to, the following:
• What is the online retail strategy, and how does the franchisee share in fulfillment, both operationally and financially?;
• Virtual versus in-person, curbside pickup, and delivery;
• Third-party delivery and related costs, especially in the food industry;
• Proximity to target customers—how far are they willing to drive to get your product/service; and
• In-home virtual shopping versus in-person sales visits.
One of the biggest impacts of the pandemic is that most of us have taken the forced isolation to reflect on what is really important in our lives. Many people have realized their jobs aren’t as meaningful or fulfilling as they thought prior to the pandemic; some people no longer want to put up with bad bosses or less-than-desirable work environments. This dissatisfaction is expected to trigger a massive career transition search in the coming months. Canadian and U.S. surveys are reporting 40 per cent to more than 50 per cent of respondents are considering a career change,
What we are hearing from professional recruiters and our career transition firm partners is the desire to remain working from home is strong, and widely prevalent. Unfortunately, for these people, the number of new corporate job options are narrowing, especially at the more senior levels. These executives have respectable financial resources and a deep transferable skills base, so they may be seeking alternative career paths in the entrepreneurial world.
Many of these people may end up as new franchisees, where they can have far more decision-making autonomy and control over how their work and personal lives integrate. Many are also likely to gravitate to home-based franchise business models; these franchises can be found in many sectors and are very attractive due to lower start-up costs and higher profitability percentages per revenue dollar.
In our franchise search work with more than 2000 Canadians over the last 19 years, the ability to have better control over how to integrate one’s work life and personal life has typically been one of the top three criteria. In the last six months, though, this has become the top criteria for the vast majority of clients.
We have become acutely aware of how fragile life can be, so there is a strong desire to maximize ‘feel-good’ experiences. Let’s look at this from two perspectives:
1. For those seeking a career change, doing more meaningful work than ‘just doing the daily corporate grind’ is a close second to control over work-life integration. In the 50-plus interviews that I conducted earlier this year with franchisor CEOs and their top-performing franchisees, one of the most important factors that contributes to top performance is having a strongly aligned personal purpose with what their business does. This is, therefore, a critical consideration for someone considering franchise ownership.
2. From the consumer perspective, the self-care/feel-good trend will impact our spending decisions. Because Canadians generally have more cash available right now, it is expected they will seek feel-good experiences more often, and be willing to pay more for better quality, both for products and for services. This bodes well for franchisees that offer a premium brand or a premium experience. On the self-care side of things, we will be prepared to treat ourselves more frequently in order to better manage our stress levels.
The early days of COVID-19 created an underlying fear—that people and places carried an invisible threat (Accenture, April 2020). We are all very aware of how mandatory government lockdowns, as well as people’s personal decisions regarding how to protect themselves against the threat, have impacted our lives. As we progress into higher levels of the population being vaccinated, there is a massive desire to get back to relative normal. However, our escalated awareness of personal safety will likely not wane for some time to come.
Existing and would-be franchisees need to be aware of what this means, and how they will manage staff and customer expectations and experiences around a few critical areas:
• Creating/maintaining a safe environment for your customers and staff;
• Setting up and staffing curbside pick-up/delivery;
• Third-party delivery and related costs; and
• Potential for further mandatory distancing/restricted customer flow/capacity.
Staff safety related to vaccinations
• Creating/maintaining a safe environment for your staff;
• What is the franchisor’s policy regarding employing/restricting non-vaccinated staff;
• What are the provincial/federal HR rules employing/restricting non-vaccinated staff; and
• What are your personal beliefs and what happens if you’re not aligned with the above?
Customer safety related to vaccinations
• What is the franchisor’s policy regarding non-vaccinated customers;
• What are the provincial/federal HR rules on non-vaccinated customers; and
• What are your personal beliefs and what happens if you’re not aligned with the above?; and
• PPE costs will continue to be an expense that will factor into profitability forecasting.
How these trends will affect the franchise landscape
The home improvement industry is a very mature ‘old-growth’ industry, historically seeing annual year-over-year growth running around three per cent. Over the last 15 months, however, this industry has seen growth of over nine per cent; it is expected this will continue for the next several years. Three transactions that help drive this industry are: buying a new home; selling an existing home; and staying in place and improving the current home.
Additional factors driving this growth include:
• Surplus cash in people’s bank accounts;
• Housing stock shortage;
• Increasing demand to work from home means increasing home functionality; and
• Desire to increase the home value and build equity via upgrades.
Many of the franchise offerings in this category are lower investment, work-from-home, small staff businesses, so this will continue to be one of the hottest franchise growth sectors.
Senior care/Aging in place
People in long-term care facilities were amongst the most seriously impacted by the pandemic; the resulting deep fear has triggered a significant shift in how seniors are looking at where they want to live for the rest of their lives. ‘Aging in place’ has gained massive momentum over the last 18 months and has created significant additional demand, which is likely not going to wane. In-home senior care is the most obvious service that benefits from this spike. The biggest challenge for this type of business will be staffing, so solid leadership and management experience is a must.
There are a number of other franchise offerings that will also benefit from aging in place as seniors become less able to do things for themselves (residential cleaning, gardening, handyman services, shuttle driving, etc.). These are often long-term relationships with very loyal, regular, repeat customers, thus creating significant growth opportunity for the franchisee.
This sector of franchising includes hair care, spa/beauty/nails, fitness, massage therapy etc. It has performed consistently well for many years, but was one of the most sensitive to mandatory lockdowns. Many were able to survive and continue to thrive due to continued demand and assistance from government subsidies. These businesses thrive because they enjoy regular, repeat customers, often paying a monthly membership fee. Many franchisees are multi-unit semi-absentee owners with full-time managers in place at each location.
As we approach higher vaccination density and return to relative normal, we are expecting to see a strong surge in this category, in part driven by the feel good/self-care trend mentioned earlier. These businesses typically appeal to people with strong operations/management experience who are seeking multi-unit opportunities. Savvy investors comfortable with a bit of higher risk should pay attention to opportunities coming in this category.
The food industry is one of the other sectors most sensitive to mandatory lockdowns. We witnessed rapid and incredible innovation from this sector in the early stages of the pandemic, especially around delivery and curb-side pickup. Drive-thru also became an attractive differentiator. Franchise brands that recognized the importance of the convenience trend innovated best and experienced incredible growth; some franchisees even reported record sales. Brands that did not innovate, suffered.
The food industry also had to focus on improving operational efficiencies over the past 18 months; one trend to watch is how the industry will reduce delivery costs. While the staffing shortage is currently a hot media subject, it is anticipated once the government wage benefits end, things will improve substantially.
Another exploding trend in food is ghost kitchens, where brands can extend their reach and expand menu offerings. A caution here—the ghost kitchen model is still in relative infancy. While it has been heavily driven by pandemic-related factors, it is still unknown as to how sustainable this trend is. One can take some comfort in the fact many major food franchise brands are exploring this model.
As a 30–year veteran of the franchise industry, I have never seen market conditions as strong as they currently are for the franchise industry at large; especially for those franchise systems that are maximizing the mentioned trends. I believe the next two to three years will see some of the strongest new franchisee growth in recent decades.
Yes, the franchise industry has suffered casualties from the pandemic, but we have fared far better than independent non-franchised businesses because of the very strength of the franchise business model—the collective brain trust and experience base that franchisees get to harness. For people who are no longer satisfied or fulfilled with their corporate careers, now is one of the best times ever to consider franchise ownership.
Gary Prenevost is an author and franchise search coach. He is also president of FranNet of Southern Ontario and Eastern Canada.