The economy is going through a time of serious struggle. As the economy slows down those in the franchise community are being forced to respond. But how, and to what degree is the slowdown affecting those who own and operate franchises. Seeking a response to questions such as these Frantrends Magazine called together an economic roundtable of franchisors.
The question we posed to every franchisor, what affect is the economic slowdown having on you and your franchise? We have chosen a representative showing of the responses are below.
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Question: What affect is the economic slowdown having on you and your franchise?
“The tightening of the credit market has made it more difficult for potential franchisees to get financing and this has made it more difficult to sell franchises.”
Robert Falconi
President & CEO
Precision Tune Auto Care
“The economy directly affects franchising and small businesses alike. As wireless phones and technology are constantly evolving, they have increasingly become more than just a tool to make and receive calls. Instead they have transformed into a platform for internet access, email on the go, GPS with turn by turn directions, picture and video messaging, and more. Can you be without your cell phone? As of 2007, there were 255 million wireless subscribers and $138 billion dollars were generated in revenue. Since studies predict exponential growth in wireless across multiple platforms, it is our belief small business owners could not be involved in a better industry, even in the economic slowdown that many companies are experiencing.”
Kristy Lopez
Director of Operations
Yakety Yak Wireless
“Some of our franchise sales were clearly funded by home equity which has been severely reduced due to the real estate slump and the credit crunch imposed by financial institutions struggling with liquidity. We experienced a temporary slow down in sales as the old pipeline dependent on home equity fell out of our sales process but then got back to a normal pace of sales attracting new prospects that are not dependent on home equity.
On the operational side of the business we are actually benefiting from the slow down. Our program as a franchise operation with a local presence enjoys a significantly reduced fixed cost of operation when compared to our competitors that are not franchised. When the economy slows down and revenue generated from each location is reduced although it hurts everyone’s business it hurts our competition more because they have a higher fixed cost of doing business. As a result the percentage of new business we secure for our franchisees by replacing competitors has increased.”
Jeffrey Kerr
President
ACFN Franchised Inc.
“Like almost every American today, our potential franchisees have seen their net worth’s decline and have consequently experienced difficulty in obtaining financing. For similar reasons, our developers have also had trouble obtaining financing.”
Robin Posey
Franchisee Liaison
Goddard Systems, Inc
“Operationally, we have seen a few customers close and go out of business. They have primarily been in the financial sector (e.g. mortgage companies) however, we have such a broad base of customers and each customer represents such a small amount of monthly revenue it hasn’t impacted our overall performance. We are seeing same store sales increases on a year-over-year basis in excess of 80%! As businesses close or consolidate we are often called in to complete a “purge” or “clean out”. An increase in purge business has brought in additional revenues. Some of our franchises are finding it a little more difficult to access credit facilities, secure new equipment or vehicle leases. We step in and encourage system suppliers to accommodate.”
John Prittie
President & CEO
Proshred Franchising Corp.
“MAACO’s system-wide sales expanded during the last four recessions dating back to 1980. No matter the state of the economy, people still pay to have work done on their cars.”
Tracey Fischer
Marketing Coordinator
MAACO Franchising, Inc.
“It has affected our company a lot. Our sales have decreased and unfortunately we have not had the extra budget for advertising as we had anticipated.”
Lara JillOne Price Inc. /Wolf Realty Corp
“It depends on the part of the country, but overall our franchisees are doing well. We provide computer service to small businesses and home users, so during “good” times we do a lot of new system installations, but in “bad” times businesses and individuals look to get more mileage and productivity from older equipment, and we’re good at that too.
We surveyed our franchisees in May and well over half were seeing a stronger 2008 than 2007 at that point. Still, we do see more uncertainty with many of our customers. Even the ones who have not been directly affected themselves are still less likely to commit to longer service plans, even when it will save them money in the long term, because they don’t know what to expect in the months ahead.”
Chip Reaves
CEO
Computer Troubleshooters Global, LLC
“In the automotive aftermarket we began experiencing the economic strain much earlier then the majority of the Country. We began seeing a flattening of sales in the 4th quarter of 2007 and then a decrease in same store sales in the end of the 1st quarter of 2008. This decrease has continued throughout the year but appears to have leveled off. Early on it, was thought that the slow down was due to the increased gas prices, reduction in miles driven and consumers choosing to hold off on maintenance. Given this market condition we immediately began the development of a strategic and tactical plan during the 3rd and 4th quarter of 2007. In that period we saw a reduction in our sales increases to a 1 to 2% level down from a 6% to 8% in the past fiscal year.
Our strategic objectives were to reduce our expenses and develop new and low cost sales strategies for our franchisees to implement. With this we began evaluating and improving our internal processing systems, our use of technology within our system, and methods of communication. In addition we began to develop more localized marketing plans for our franchisees to implement along with material that would generate brand awareness and speak more to the concerns of consumers.
By having more a proactive approach to this situation we have been able to continue to retain profitability along with improving the support systems for our franchisees.”
Pete Baldine
CEO
Moran Industries
“We have found that even though builder sales are down and residential sales are slow, commercial projects are still strong. With our model, we have the flexibility to address each segment of the market competently. While commercial sales are up, we concentrate more effort there. Our target residential consumer is also one with a higher income who is less affected by current conditions and they will make purchases regardless of market conditions. Since we have always practiced an appreciation of each and every customer and provide them with a very satisfying purchase experience, we find that we can hold our margins and enjoy more profit dollars with fewer customers.
We have also found that many middle-income consumers are staying in their current homes and refurbishing. While some customers will choose a product that they can live with temporarily to freshen up (and sacrifice for now on what they really want), others will take a “wait and see” attitude. This traditionally causes a large pent-up demand. As soon as economic indicators become more favorable, and confidence builds, customers will be ready to make their move to upgrade their homes. We have programs in place that keeps our franchisees in front of these consumers. While other retailers pull back on their advertising and seem to disappear, we stay in front of our customer base.”
Christine Rankin
President
Carpet Network Inc.
“One would think that any business that services even a few of the estimated 30 million women in the United States with hair loss is clearly “recession-proof” (our most recent media success is an appearance on The Big Idea with Donny Deutsch, a show that features commentary and stories of successful entrepreneurs). But in these tough economic times, even women in need of medical services like those provided by Klassic’s International are faced with what appears to be an unfair choice: they are berating themselves daily about whether to use their available funds to take care of their overall health or pay a mortgage that is slowly slipping away from their control. After hearing countless stories like these from our long-term clients, we realize that even businesses that are providing people with a service they typically can’t live without are not immune from the pitfalls of this horrid economy. Though the need and desire for our services continues to be in high demand, the slowdown in clientele means the business slows down as well.”
Jo Owens
Klassic’s International
“Franchise sales are down over the last 18 months, store volumes are down about 10% over all but stores in tourist or seasonal areas are down more.”
Harold J. Hill
President/CEO
Bad Ass Coffee
“At ShelfGenie, we have seen some slow down, but within our target demographic our products are more of a need based item versus a luxury item. We cater primarily to boomers and older, where being able to function around the home becomes increasingly more difficult. We offer a high value low cost home improvement solution that often significantly betters their home life.”
Michael Pollock
Director of Franchise Development
ShelfGenie
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“Honestly, interest in our franchise and actual sales growth has been strong. Our franchise has a high passion level (pets). In addition, we have opportunities for entry that are less than $10,000USD. And, we have begun to expand internationally through Master Franchise agreements.”
David J. Mokry
Chief Operations Officer / Hey Buddy, LLC
“We have seen the franchise sales process elongate. Occasionally we have had some issues getting potential franchisees financed as easily or for as much as they would like. Our franchisees themselves are actually having an “up” year overall though. So we have had some impact, although not as much as others.”
Alex Lawrence
President/Chief Development Officer
Five Star Painting Franchise
“Oddly enough, I have seen an increase in the interest in our franchise. I believe people are starting to see that taking the step towards controlling their career futures are in their best interest. People have been laid off jobs and want to be in more control. We have definitely seen a loss in business as far as clients, but not franchisees.”
Robyn ElmanPresident
In Home Pet Services, Inc.
“The economic downturn has affected the foot traffic that our mall-based stores have seen which has in turn affected sales. Our business is also predicated on the success of certain teams with a large national following, and the fact that teams such as the Steelers and Cowboys have gotten off to a strong start has helped sales nationwide.”
Ben Devoe
Pro Image Franchise
“The diminished investment confidence has slowed franchise buyer commitments and also reduced incoming leads and inquiries. We have good candidates stalled in our pipeline that would have already been closed otherwise.”
Fred Harms
Vice President of Franchise Development
Kiddie Academy®
“We had several people back out in October. They had verbally committed to signing the franchise agreement and then decided not to move forward. We also had several Discovery Days cancelled in October and early November. Currently our leads have decreased but those who have inquired about business ownership seem to be more qualified. We are re-designing our collateral material to send a stronger message about the benefits of being in control of one’s own destiny by business ownership. We are incorporating more testimonials, and we are interacting with our prospects more and in different ways. Our existing franchisees are tightening their belts. We have instituted several things to help such as biweekly conference calls to discuss cost cutting, grassroots marketing, and HR issues that are affecting our business. We have been approaching our vendors and asking for better pricing. We are helping our franchisees with more effective internet marketing. We have also been assisting franchisees in negotiating rent relief. We are continually looking at ways to be efficient from our perspective and also from our franchisees’ perspective.”
Carolyn Cothran
Director of Franchise Sales
Sweet and Sassy
“We are selling more franchise systems now and have a larger inventory of potential zees than in the previous first and second quarter. I believe that the reason for this is that we are selling into a client base that is looking to exit the day to day job.”
Peter C. LytleChairmanFranchise Development Group (College Nannies & Tutors, Live Green, Live Smart Builders)
”More interest, because people are thinking about getting into business on their own without the fear of being “downsized. Sometimes a tentative economy gives people the push to take leaps of entrepreneurial faith that they might have discounted in order to remain in their safety zones. People understand the job search process so the consideration of owning a staffing company is not an unknown.”
Daniel Abramson
V-P of Franchising,
Lloyd Staffing
”We have not seen a reverse effect of the economic slowdown. In fact, in the last three months alone we have increased 10% system wide in sales. Our business is unique in where as people pull back using their disposable income on such things as travel and electronics, our hobby, bird feeding, is something you can do around the home at a minimal cost. Our kinds of customers tend to shop closer to home (local community stores like ours). The “staycation” concept is benefiting us (travel less – do more out of your home/garden) and we are in tune with the “green-wave” and being “closer” to nature. We are a “feel-good” hobby in these trying times.”
Henrik Lehmann Weng, CEOWild Bird Centers of America, Inc.
"The number of qualified leads we are receiving from all sources is significantly below that of last year at this time. As a result, sales are off."
Howard Levine
Senior Vice President
Americlean Dry Cleaning Centers, Inc.
“Aspiring entrepreneurs are more cautious, taking longer to make decisions. Everyone keeps waiting...for something to happen. I thought the US election would make a difference, but as of yet, not too much.”
Sanjay GuptaPresident/CEO
Tea Connexions
“We’ve seen an increase in unqualified leads; people who have been laid off or are trying to take control of destiny. Our franchise model is attractive to them because it is low tech.
Many of our franchise partners are on the fence about selling.
Some of our franchise partners are in the process of shutting down because the slower winter season is ahead of them and they are out of money.
Many franchise partners are merging and/or consolidating.”
Tania Hall
Senior PR Manager
1-800-GOT-JUNK
"It has made the pool of individuals with enough financing to purchase a turn-key franchise smaller, and has made people more cautious about making large investments."
Phil Liddell
Garage Floor Coating
