So far, based on what we know today (October 5, 2020), the [pandemic’s] impact on franchising is less significant than on businesses in general.
Without question, the biggest story of 2020 was COVID-19.
Understandably, the pandemic has had some negative effects on the franchise industry. Per a report from FRANdata, an estimated 32,700 franchised businesses closed within the first six months after the COVID-19 outbreak. 21,834 of these franchises closed temporarily, while 10,875 closed permanently.
Yes, there has been damage done. But, as is common when downturns come, people found adjustments that lessened the hit COVID-19 could’ve had.
This is how the novel coronavirus impacted franchises, from how franchises adapted to a business environment that changed overnight to how franchisors kept making sales.
In addition, we tell the story of a couple that took the plunge into franchise ownership this past year, and some advice from them for other prospective franchisees on what they should keep in mind when doing their due diligence.
Pivoting Operations: When Corona Hit.
As the Coronavirus spread across the world, Dickey’s Barbecue Pit CEO Laura Rae Dickey had a question: “As we come into these challenging times, how do we meet our key values?”
It was a question that all franchise brands had to ask themselves as the world basically went into pause mode to fight an invisible, and formidable, opponent.
For Dickey’s specifically, it first responded by migrating its decades-long tradition of kids eating free in its dining rooms online in an attempt to temper the financial impact on its 520-unit network.
The food franchise also “doubled down on our technology platforms,” according to Dickey's:
We made additional investments in online ordering, [and]… shifted almost all of our marketing spend to digital channels. We also cut franchise royalties by 50% for 14 weeks to help owners with cash flow and retain as many team members as possible.
The ability to adapt quickly paid off.
By keeping a mix of recession-minded offers and introducing new menu items that increased repeat purchases, we were able to increase check count by 391%.
The COVID-19 pandemic has been a major test of franchises’ preparedness and nimbleness.
Those who could pivot the quickest commonly cited a few factors: having solid communications plans already in place, and a good, responsive network of owner/operators, and a strong an in-house technology team.
Benjamin Franklin Plumbing franchisees were grateful for existing lines of consistent communication with the franchisor when the pandemic hit.
Benjamin Franklin Plumbing already had a Franchisee Leadership Team (FLT) established prior to the pandemic, and it exists to continuously improve our brand as a whole with system-wide collaboration and ongoing communication.
That team, along with the network of owners across the United States he says proved to be invaluable as, “we all navigated through the unknown.”
For Cousins Subs, crafting its pandemic response meant leaning into its technological capabilities.
Technology has always been at the forefront of our business, and during this pandemic it's more important than ever.
That trust in the company’s technology processes was tested when it had to transition quickly to carryout service. “We introduced curbside pickup in less than two days,” he recounts about the early days of socially-distant service. Furthermore, investments had to be made in cloud technology.
As online ordering became the sandwich franchise’s main source of revenue, Thurmer remarked that its cloud connection “is more important than ever.”
Looking forward, Thurmer sees Cousins Subs and other restaurant franchises having to tweak the prototypes used for their franchises in order to keep up with pandemic-accelerated shifts in the way customers interact with their food providers.
Coming out of the pandemic, I believe we'll develop prototype ideas and bring them to our restaurants quicker than ever before. The restaurant industry will bounce back and what we are learning from this situations will help us bounce back stronger than we have ever been before.
Franchise Sales in the Midst of a Pandemic
When stay-at-home measures were initially announced there was a question what would happen with franchise sales. It was quickly discovered that—like everything else—adjustments would be made, but business wouldn’t stop.
According to a FranConnect survey done at the end of March, “two-thirds of franchisors [were] actively moving forward with franchise sales efforts in anticipation of an influx of newly-unemployed professionals looking for business opportunities.”
How did franchise sales fare during the year?
As you could expect, franchise sales did dip slightly in the second quarter of 2020 (April through June). But the ever-resilient power of the franchise business system steered the course.
According to FranConnect data, franchise deals began to rebound slightly in the third quarter of 2020 (July through September). (Note: Data for Q4 2020 had yet to be made public at the time of publication.)
Franchise Lead Conversion Rates for 2020 (Source: FranConnect)
Franchise Deal Trends for 2020 (Source: FranConnect)
So how did franchisors keep the ball rolling when it came to franchise sales?
Here’s a couple of the biggest takeaways.
The biggest change was in the way of recruitment.
With up close and personal contact limited for the foreseeable future, franchises had to find an alternative to traditional networking events. Senior care franchise ComForCare found social media could be a useful tool in filling the gap.
We used to encourage our owners to get out in the community, find different colleges or programs in the area to network with and to help build [their] recruitment. We often talk about how recruitment is similar to marketing, in that networking is so important. We unfortunately can’t use those more traditional techniques, so we’ve been focused on leveraging social media to share those jobs.
What about interviewing potential franchisee candidates and onboarding?
ComForCare has found platforms such as TextRecruit indispensable, especially as people have been bombarded with more phone calls and emails. The franchisor completes steps in the sales process like scheduling interviews or sending out basic company information via text.
We know that people are getting inundated with phone calls and emails. And especially with COVID-19, there was so much communication going on. TextRecruit became a way for our owners to be able to easily and quickly send a text to an applicant or any candidate in their system. We’ve seen really great success in terms of response rate. With email or phone calls, the response rates are usually quite a bit slower.
Basically, franchisors were able to continue selling by realizing one thing: being socially distant didn’t mean that you couldn’t be personal.
As David Hicks, CEO of real estate franchise HomeVestors, said earlier this year:
We are still personally interacting with sellers to buy houses, as well as continuing to train new [franchisees], but doing so virtually.
Taking the Leap into Franchising (Amidst It All)
If franchise sales kept going despite the pandemic, that means franchise buying kept happening.
But why buy in the midst of a pandemic? Further, why buy a hair salon franchise when many hair salons and barbershops had to close to meet state mandates?
I'm forever the optimist and have been buying distressed real estate for more than 20 years. If you've got the financial ability to get started, even through the temporary setback of business closings, look at the steps being taken to overcome the situation and think about the business opportunities it creates. I've been through other periods of uncertainty and the market eventually corrects.
As with many franchise purchases, the seed of franchise ownership was planted some time before the purchase. For Rick and his fellow real estate professional wife, Rendi, the road to Sport Clips franchise ownership actually started a couple years prior.
In the Hills’ case, the seed was planted in 2018 when Rick met the founder of Sport Clips Haircuts, Gordon Logan, and his son, Edward, the company's CEO, at an auto racing event.
Since that point in time, Rick learned more about the Sport Clips franchise opportunity via introductions to a number of the brand’s franchisees and area developers. It didn’t hurt that Rick says he liked everyone he met.
Fast forward to 2019 when he and his wife started talking about the idea of a franchise investment seriously. They examined their options, even did the due diligence work on another franchise concept, but pivoted back to the specialty hair salon concept because they felt it had better key business indicators.
How did the Hills evaluate their franchise opportunities, especially when several unforeseen factors rose up to complicate the process?
The key is to figure out what is important to you personally—and stick to finding a franchise that matches up with those characteristics.
For example, when they were doing their research, Rick says they looked at things like the opportunity to hire skilled employees as opposed to “unskilled labor,” which is more prevalent in other franchise models. A fact that was very attractive to them.
Another big perk for the Hills is mode of operation day-to-day.
Because Since Sport Clips franchisees can run their franchise as an owner/investor, it afforded Rick and Rendi the time to make the franchise investment now and continue their real estate work at the same time. This flexibility is one of the major benefits of franchising.
Rick’s recommendation to others who may be interested in getting into a franchise business during what may be considered an upside-down time in history:
Go with the best brand, one that eliminates many of the barriers to entry to give yourself the best opportunity for success. As I see it if we’re not successful, it's our fault, not Sport Clips’.
The Hills aren’t betting small either. Rick and Rendi signed on for three franchise licenses, have five existing stores under contract, and plan to end their first year with 10 locations in California. The Hill's long-term goal is to have a total of 25 Sport Clips locations. We are here for empowering success stories just like these, that exemplify the power of franchising.