2019 Outlook for Franchising | International Franchise Association

2019 Outlook for Franchising

 

What does 2019 hold for franchising? New horizons, unexpected challenges or much of the same? We asked IFA’s Board of Directors to find out in our annual Board Perspectives Q&A.

 

Questions:

1). What is your outlook for your business and the overall franchising community heading into 2019?

2). What are the top issues facing your franchise system for 2019, and how are you responding?

 

 

 

 

Tom Baber

Multi-Unit Franchise Owner, IHOP and Money Mailer

 

1). The outlook is strong. Employment is solid, which will positively impact sales. Wage pressures and lack of workforce availability will continue to be a challenge but innovation and perseverance will overcome those challenges.

 

2). Labor as mentioned before. Innovating ways to both find and keep talent will be a top priority. Minimum wage movement especially large chunks. It will force ingenuity to give great service with a smaller number of people. There is only so much that can be passed along to consumers without customer count suffering so other options will need to be considered. Automation, digital ordering and others are on our radar and we will continue to invest in those areas. Staying on the top of our game in all facets and remembering strong economies do not last forever. All stakeholders need to thrive in both environments.

 

 

 

 

 

Jania Bailey, CFE

CEO, FranNet

 

1). I believe 2019 will look and feel a lot like 2018. The strong economic climate will be good news for franchise operations and unit economics while continuing to provide a challenge to franchise development. The robust job market is always a strong competitor for franchise development teams and this will be the landscape for 2019 unless we have a dramatic change in the market. The franchise industry needs to continue to educate the legislators, politicians and public about the benefits of the business model.

 

2). The robust job market is our major issue for 2019. The majority of our clients are looking at jobs while also reviewing franchise ownership. We must continue to present well matched concepts to the clients that provide them with an attractive alternative to the corporate world. Staying top of our game is always a goal. Being sure our franchisees and consultants are the very best trained in the industry and completely focused on providing the very best customer experience. Continuing to educate the industry on the importance of transparency regarding the franchise broker’s role in the sales process.

 

 

 

 

 

Jerry Crawford, CFE

President and CEO, Jani-King International

 

1). 2019 is milestone year for Jani-King as we celebrate the 50th anniversary of this great company. I am deeply proud of what our founder built, the successes we’ve experienced for a half-century and for what our people continue to work toward today. In the last year alone we have welcomed new domestic and international master franchisees and created a new division at our corporate headquarters to manage business growth in certain sectors. The franchise industry is the greatest business model for growth and we could not be more optimistic about the opportunities in front of us in 2019.

 

2). Technology continues to be a main focus for us at Jani-King. While our vendors build faster, better cleaning equipment, we are focused on delivering faster, more effective communication tools. Over the past year we have been developing customized software programs that will improve the way our franchisees conduct their businesses and the way in which we communicate with our customers. The joint employer issue is certainly something we intend to also remain focused on in 2019.  We are encouraged the U.S. Department of Labor intends to pursue rulemaking on this issue so that there are clear, understood standards going forward. This is something we feel will benefit the franchise industry and foster confidence in how we and our franchisees conduct business. As our franchisees grow through larger customer accounts, finding sufficient amounts of qualified labor can create challenges for them. We are closely monitoring labor issues both locally and on a national basis. From minimum wage laws to immigration reform to healthcare, issues surrounding labor will demand our attention in 2019.

 

 

Related: State of Franchising in 2019

 

 

 

Questions:

1). What is your outlook for your business and the overall franchising community heading into 2019?

2). What are the top issues facing your franchise system for 2019, and how are you responding?

 

 

 

Charles E. Chase

President and CEO, FirstService Brands

 

1). The outlook for our businesses is good for 2019.  We will continue to ride the bow-wave of this economic cycle.

 

2). Labor: Recruitment, engagement and retention of great people will continue to be a challenge. Focus: It’s been a long recovery; keeping a keen focus on business goals has been an issue during these interesting times. Tariffs: Tariff imposition wreaks havoc on buying and selling functions. Uncertainty on pricing creates uncertainty and forces price increases. This is an issue for everyone.

 

 

 

 

 

 

Ronald Feldman, CFE

Chief Development Officer, ApplePie Capital

 

1). We see continuing increases in the cost of capital, and a rationalization of leverage multiples for franchisee businesses coming in 2019. Lenders are very focused on more than sales growth and looking at guest count as well to protect brand market share.

 

2). I defer to franchisors on this question.

 

 

 

 

 

Lane Fisher, CFE

Partner, Fisher Zucker

 

1). Franchise ownership will continue to become concentrated in the hands of fewer owners. I expect to see more multi-unit owners, mega franchisees and private equity owned franchisees, as operators maximize economies of scale and consolidate fractured industries. Mega-operators will be backed by mega-capital to provide the resources needed to obtain mega-scale. More multi-brand franchisees will seek to leverage their greatest asset – existing customer relationships across multiple complimentary but non-competing brands. I anticipate that ample capital will continue to be available to fund franchisee growth. Debt capital remains available, and private equity continues to provide much investment capital, especially for sizable and scalable operations. Well-capitalized franchisees will likely continue to acquire franchisors, as they have the capital and operation expertise to grow. The new income recognition rules and resulting capital constraints will limit the use of area representative strategies for emerging brands, as well as the double-digit development agreements and long term development schedules. 

 

2). The continued scarcity of qualified leads will continue to restrain growth, and franchisors will be forced to resort to new likely digital-based strategies to recruit qualified franchisees, or rely on brokers who do their own lead generation. Technology will continue to disrupt traditional business models and franchisors will need to lead this charge rather than react to it, to stay competitive. The biggest problem for franchisees going into 2019 are finding competent and capable people to assume jobs, rather than entry level folks who require a lot of training. Despite all the hub bub about anti-poaching provision in 2018, since these provisions were rarely enforced, I predict no increase in the number of skilled portable workers available to franchisees. Franchise growth will continue to be constrained by regulatory hurdles on franchisees, like minimum-wage hikes, menu-labeling policies, and looming exposure for joint-employer. Refranchising will make a comeback as many mature brands shed company owned units, and seek to maximize the earnings multiples associated with royalties.

 

 

 

 

Questions:

1). What is your outlook for your business and the overall franchising community heading into 2019?

2). What are the top issues facing your franchise system for 2019, and how are you responding?

 

 

 

Lorne Fisher, CFE

CEO and Managing Partner, Fish Consulting

 

1). If the end of 2018 is any indication, 2019 should be a strong year! We're seeing multiple franchise brands – across various industries and sizes – seeking new partners to build their brands in the U.S. and beyond.

 

2). As a franchise supplier, we are affected by our clients’ business challenges as well – at least as it related to our marketing strategies. The political climate will continue to pose a challenge to all supporting the franchise business model, but brands have proven to be resilient. The other challenges we envision is technology’s impact on operational excellence and driving innovation. Brands cannot rest on their past success – they will need to continue to innovate in all aspects of their business.

 

 

 

 

 

Sherri Fishman, CFE

President and Co-Founder, Fishman Public Relations

 

1) We’re projecting another strong year for growth overall for franchise businesses with the continued popularity of fitness, niche food and a special focus on brand messaging, franchisee support and the growing role of social responsibility.

 

2). I defer to franchisors on this question.

 

 

 

 

 

Gordon B. Logan

Founder and CEO, Sport Clips

 

1). The reduction in government regulations, minimization of over-reaching agency policies, and the tax reductions in effect for 2018 and beyond are driving growth as projected. Joint employer threats to franchising remain a long-term concern, even though the threat has been reduced at least temporarily. With the Democrats in control of the agenda in the U.S. House of Representatives, we shouldn’t expect any further help from legislation, but with the Senate under Republican control the damage the House can do is limited. We believe that 2019 will be another strong year for us, for franchising and the overall economy.

 

2). Recruiting and retaining top quality employees will continue to be the highest priority for us in 2019. Lowering barriers to entry that occupational licensing requirements have created would open up new opportunities for long-term, productive careers, and increase the available labor force for many franchises. Our Help A Hero scholarship program provides assistance for veterans who are transitioning from military to civilian careers, with over 1,000 scholarships awarded to date. We were the first national sponsor of the St. Baldrick’s Foundation, and we just renewed our sponsorship for another three years. These programs are key to our ability to attract and retain outstanding team members, and reinforce our value of doing the right thing. In 2019, we will be implementing new technologies to make visiting our stores even more convenient for our clients. We are also committed to identifying and implementing more effective communication channels, including social media and other non-traditional methods.

 

 

 

 

 

Mark Liston, CFE

President, Glass Doctor

 

1). I am anxious to see if the new House and Senate can get anything done.  The debacle over the Brett Kavanaugh Supreme Court confirmation hearings sickened me. I’m not sure the two parties can agree that next year is 2019 – much less the important challenges they need to face together. On the contrary, I have a great deal of confidence of what the IFA is doing with the guidance of Robert Cresanti, CFE. I like how we are being represented in D.C. by Matt Haller and team with the challenges facing our industry in several areas.

 

2). Joint Employer: This one is so frustrating for those of us who really want to help our franchisees! Franchisors want to give them that support. The National Labor Relations Board continues to threaten the very being of our industry. We are keeping franchisees updated on the work IFA is doing on this subject. Finding technicians: I know many technicians who make great incomes in several home service companies. Our technicians are aging and we need to find the way to attract younger talent to us. Great technicians are never out of work! We are working with an industry expert to solve this challenge. Ever-changing technologies: Amazon Prime has lead the way on providing what customer wants – now! There are new technologies in the marketplace that help us to meet and exceed our customers’ expectations. We have a strong IT department that is finding ways to incorporate these to our software packages.

 

 

 

Questions:

1). What is your outlook for your business and the overall franchising community heading into 2019?

2). What are the top issues facing your franchise system for 2019, and how are you responding?

 

 

 

Tamra Kennedy

Multi-Unit Franchise Owner, Taco John’s

 

1). Franchising remains on top of the leaderboard for job creation and growth. With a generation being raised on “collaboration” and “community,” it makes sense that franchising is a perfect business solution to share a good idea with the world. I expect that we will see more emerging franchisors in 2019 than ever before. With footsteps to follow and access to capital, startups should surge. IFA continues to be a preeminent resource for dreamers that want to be doers!

 

2). The demand for delivery to homes and businesses continues to grow as does the expectation that the product delivered meets the high-quality standards the consumer has grown to love when dining in person. The race is on to be the first to solve this for the consumer with a quality guarantee. Another issue is that staff tenure remains a challenge. To maximize our ROI on recruiting and training dollars, which increased three-fold in 2018, we need our staff to stay in place. Coupled with the reality that fewer people are entering the job market at a young age, our focus has shifted to finding fresh engagement and retention ideas that stand out as a point of difference from other jobs in our markets. Streamlined operations will also continue to challenge the brand. With staff turnover so high, we need to work together to find fewer steps to get things done and focus on efficient transactional processes. Refining our model to provide a simpler set of standards that are easily taught and understood will speed up training and slow down mistakes-both of which must happen to stay competitive.

 

 

 

 

 

Catherine Monson, CFE

CEO, FASTSIGNS International

IFA Second Vice Chair

 

1). We expect 2019 to be another record year for FASTSIGNS, as was 2018. Our franchisees continue to achieve significant same-center sales growth and we continue to grow the number of FASTSIGNS locations. We continue to focus on further improving already high franchisee profitability and providing world-class support and leadership to our network, leading to continued high levels of franchisee satisfaction. The strong economy, driven by the tax cuts and reduced government regulations, benefits FASTSIGNS as well as the entire franchising community. We believe 2019 will be a strong year for all of franchising and the U.S. economy.

 

2). The labor shortage we face as a country certainly affects our franchise system. Recruiting top talent, increasing the skills and knowledge of our franchisees’ employees, and employee engagement and empowerment will continue to be a challenge and one of our top priorities. We continue to invest in innovative training tools to help our franchisees train their teams as well as training our franchisees on employee engagement and empowerment. The strong economy and low unemployment has led to some qualified franchise candidates taking jobs at very high wages, rather than investing in a franchise and becoming their own boss. This has had some effect on our franchise sales in 2018 and we expect it will continue in 2019.

 

 

 

 

 

Barbara Moran-Goodrich, CFE

CEO and Co-Founder, Moran Family of Brands

 

1). 2018 has been a good year for our franchisees and for us both in revenue growth and market share growth. I believe the tax cuts and the reduction in regulations that had been impacting both large and small businesses have been one of the key drivers to this growth. I continue to be optimistic for 2019 that our economy will continue to prosper and grow. However, I do have some reservations with the lack of bipartisanship between both the U.S. House and the Senate impacting the growth trend for 2019.    

 

2). Recruitment – this has been a concern prior to the unemployment numbers dropping due to the lack of interest in the trades. We are continuing to roll out the internship and apprentice (type) program to help increase interest in the automotive aftermarket. This program is not just for those interested in the automotive industry but looking for a career change or getting ready to leave the military and those in their final years of high school.

 

Joint Employer – this will continue to be a serious issue and because of the recruitment concern, will be even more difficult to help our franchisees with if it is not resolved. Hopefully by the time you read this, the DOL will have the Joint Employer rulemaking completed and it will be a non-issue for 2019. 

 

Innovation – it is always evolving in our industry and is why it is one of our top issues. For us, innovation is not just about future support technology or marketing programs, it is also about where our industry is going. Of all industries out there, I think the automotive aftermarket is one of the most rapidly changing industries. In fact, vehicle data wasn’t even on anyone’s minds in the past but now it is a serious issue when it comes to who owns it and who can access it. The changes can be scary and yet exhilarating at the same time.

 

 

 

 

 

Jeffrey Tews

Multi-Unit Franchise Owner, BrightStar Care in Wisconsin

 

1). The outlook for our business of caring for clients in their home and in our Assisted Living and Memory Care communities is good going into 2019.  Demand remains strong for high quality care.

 

2). Workforce: Hiring and retaining quality Direct Care Staff is our number one problem. We are fully committed to engaging our DCS employees in the business and knowing and caring for them individually. Relegations: I am concerned over state or local rulings that discriminate against individually owned and operated franchisees by including them in a large business category. This is currently focused on wage rates, but opens the door for other areas of discriminating regulations. I am working to educate my local city and state politicians on the franchise system and our role as small business owners. We also include a section on the franchise model in on-boarding of all new employees.