How To Overcome An Industry-Wide Sales Slump
By Craig Dunaway, Penn Station East Coast Subs
Tips for franchisors and franchisees on what your franchise can do to survive an industry downturn.
All industries go through a cyclical period in which sales are robust or other periods in which sales are lower. Franchises are no exception. For example, the restaurant industry has experienced stagnant sales, with most sales growth coming from price increases (inflation) alone. Therefore, it’s important for both franchisors and franchisees to know what steps to take to survive an industry downturn.
From a franchisor perspective, it is your job to provide your franchisees with the tools they need to succeed. During a sales slump, this means you should provide both the support and factual information franchisees need to weather lower sales until the industry rebounds while preserving your brand and identity.
Franchisors: Don’t change your brand.
While every brand must remain relevant to consumers by adapting to changing consumer habits, an industry downturn is not necessarily the best time to make major changes to your brand. Don’t jump on the bandwagon with the latest fads by adding new products or services that don’t fit with your brand’s overall strategy. It confuses guests, frustrates franchisees if not well thought out, and may have the exact opposite effect versus what you were trying to accomplish.
Avoid the temptation to cut costs by lowering quality. During the economic downturn in 2008, a well-respected hamburger chain decreased the size of their burgers to counteract the rising price of the meat. The customer was getting less product for the same cost, which seemed illogical at the time and now. If they were offering a quality product that tasted great, the consumer would have understood and been willing to pay the premium price.
Don’t cut back on personnel or training either — customers will not expect less or tolerate worse service just because your industry is slumping and you’re having difficulties hiring, training or retaining employees.
Similarly, if your brand has not historically discounted, a sales slump is not the time to start offering heavy discounts. You want to reach customers, but not at the expense of lowering your standards and prices by sending a message that conflicts with your brand strategy. You are planning on weathering the downturn, and any major changes you make to the brand during it will have to be dealt with once the industry rebounds.
Be transparent with franchisees.
Reassuring your franchisees with consistent and candid communication is a requirement during an industry downturn. Franchisees will want to know how your brand is doing compared to the industry overall and what steps you are taking to help them. Franchisees will talk to each other and others in the industry. It’s better to control the message with fact-driven content, rather than letting the rumor mill flourish during a downward cyclical period.
Don’t take vendor rebates as income.
Many franchisors take vendor rebates as franchisor income, which increases costs for franchisees. In fact, some franchisors rely heavily on rebates to generate profitability at the corporate level, all at the expense of the franchisee. Although Penn Station never takes vendor rebates as income, it may work for some franchisors during periods when the industry is doing well. However, if your industry is struggling, your franchisees need costs to be as low as possible. Evaluate your cost structure with each supplier and see if you can help franchisees save money.
Even with the support of a franchisor, it is up to each individual franchisee to weather an industry-wide sales slump. The business a franchisee forms to become a franchisee is not the responsibility of the franchisor. The franchisor provides the product and the playbook, but it’s up to the franchisee to execute it to perfection every day. If franchisees have well trained and highly motivated employees and sound operations, they have a greater chance for success even during lower sales.
Franchisees: Go through your P&L statement line by line.
If you study and evaluate your P&L statement in detail, you probably won’t find one major expenditure you can cut, but you may be able to make small cuts in several places to make a difference for your bottom line. For example, bring tasks like window cleaning in house, raise your insurance deductible from $1,000 to $5,000, review your laundry and linen contract or change your telephone and cable package. A few small savings like those can add up.
Make sure you are advertising in the right places.
When sales are dropping, the tendency is to often cut marketing costs. You are competing for fewer customers, so it’s important that you are still top of mind. However, a downturn is a great time to evaluate your marketing strategy, and make sure you are spending your advertising dollars where today’s consumers are spending their time. Do you watch more Netflix now than you did two years ago? If so, why do you continue to spend significant dollars on traditional television advertising?
Whether you are a franchisee or a franchisor, surviving an industry downturn requires careful attention to detail. Avoid making big changes or cuts that impact the quality of your product and services. Your goal is to overcome a sales slump so that your business and your brand can thrive when it is over without having to deal with the consequences of rash decisions you made during the downturn.
Craig Dunaway is president of Cincinnati-based Penn Station East Coast Subs, a fast-casual restaurant franchise with more than 310 locations in 15 states. To find out more about Penn Station, click here.