Tracking Franchise Trends – Entrepreneur Magazine’s Survey

Entrepreneur magazine in the US, known for their annual Franchise 500 list, tracking franchise trends and ranking the strongest franchises from the mountains of information on thousands of franchises each year has, for the first time, looked at the past five years’ worth of industry data influenced by the pandemic and its fall-out to come up with industry-wide trends (We Crunched 5 Years of Franchise Industry Data. Here Are 4 Big Trends You Should Know About. | Entrepreneur) that give an interesting analysis of who’s thriving, who’s coasting and what changes were made over the five-year period.

Although specific to the USA, trends in franchising seem to emanate from the world’s largest economies and then filter down to other countries so it is worth noting the changes that Entrepreneur tracked that included the following outcomes:

• The average % of terminations and closures over 5 years was at 3.9%, a surprising statistic that showed that franchise brands with lower initial investments tend to have higher termination and closure rates. US industry insiders believe the problem is likely more with franchisees, not the franchises themselves and that risk tolerance and ‘sweat equity’ plays into being less well-capitalized and less sophisticated.
• The percentage growth of total units over five years across the entire franchise industry in the US sat at 13.7%, with certain sector categories like tech businesses, health and wellness, pets and home improvement experiencing stronger growth, whilst sectors including food retail, financial service and maintenance had weaker growth. Given the pandemic lockdown, areas like tech and home improvements were in demand as people spent more time at home needing IT backup and using money saved to make improvements to their homes.
• The research by Entrepreneur also showed low and even negative growth in company-owned units, particularly in categories like lodging, personal care, business services and QSR. Seen primarily as avenues to train staff, test new products and work out process kinks, post-pandemic and with recession looming in the US, company-owned units are seen and unnecessary corporate expenses that often don’t do as well as franchisee-owned sites. It also points to franchisors having to devote more time to supporting franchisees to strengthen and maintain their brand.
• Franchise fees and royalty fees are in flux, according to the US research, and in many categories, franchise fees went up while royalty fees went down, or vice versa. In some categories, both types of fees saw reductions. This bears out the theory that there should be an overhaul of both franchise fees and royalty fees and that it should be linked to supply and demand, on the brand’s success and growth and driven by competition and market forces.
• Trends are essentially a reflection of what consumers want was the conclusion of the research by Entrepreneur. This is something that is inherent in the franchise system; to be able to shift to the winds of change – either by adapting a concept, picking up what consumers want or jumping in when necessity brings on new trends. The trends that still were on the up-and-up included a strong focus not only on physical health but more on mental wellness in the form of medical services such has infusion therapy, vitamin therapy and even stem cell therapy. Although the food category will always remain the poster boy of franchising, it was the one sector that felt the impact of the pandemic the most and which has seen the most changes to its structures. Driven by necessity to introduce new income streams such as home delivery and silent kitchens and having to shift in tandem with consumer behaviour, it also saw significant fallout and closures in the US as long-term franchisees decided they’d had a good run over the years and chose to retire or sell up.