While the last few years have been challenging for almost every industry – starting or expanding a business is a natural desire for many, but finding the right formula in today’s market is no easy feat.
These days, the old adage “if you build, they will come” is far from reality. New market entry requires careful understanding of customer segments, regional preferences and site location.
We talked with Buxton’s Director of Sales, Grant Irving, to get his take on some of the trends, opportunities and challenges facing the franchising industry.
Q: What do you think are the biggest challenges facing franchisors today?
A: I think the biggest issue is the amount of competition out there. Many of the large franchise groups are in periods of being stagnant or even declining – but at the same time there are small franchise groups that are looking to play in the same general space.
Essentially, there are a lot of little fish trying to become big fish in the world of franchising. Another big challenge in the franchise world is finding good franchise operators in different parts of the country. While they may know their own market, do they know your business and understand your concept? It is essential to find operators that know more than one side of the scenario.
Q: Where do you see growth coming from in the next few years – in terms of geography and demographics?
A: Mexican-American families and Hispanic families are already being fought over in the franchise space and the level of competition to obtain these customers is only going to heighten as more first generation families move to the U.S. and become more acculturated. Initially this demographic group will buy what is familiar, but eventually they will become a large vehicle for growth as they begin to branch out and try new things. In order to capture some of that growth, franchisors need to have an understanding of what types of products resonate with this group and what level of acculturation it works best at.
Q: What is the main force driving growth for companies today? Do you see growth being driven by increased franchising, per-store sales, or other avenues?
A: In the franchise space, people are trying to sell as many franchises as possible and that’s where the primary growth is coming from. Franchisors still want the best operators possible to increase per-store sales because, in terms of development, proving a concept out with same-store sales will enable franchisors to sell as many franchise rights as possible.
Q: What do you think the biggest changes will be in the next decade or so for franchisors?
A: As the market becomes more competitive and the dollars start funneling away from some of the bigger franchisors to some of the up-and-comers, the focus will start to shift to private equity firms. More people are also moving toward data-driven decision making. The smarter franchise groups using a data-driven approach are already outpacing the competition just by having analytics to back up their claims for expansion, their claims for market optimization, and their claims for maximizing ROI.
Q: To franchise or not to franchise – how does a brand decide if they should grow through corporate locations or franchises?
A: The smart franchisors opening locations have a strategy and have an exit plan – is it going to the IPO stage, is it going to get to a certain threshold where we can sell it to a private equity company, or is it franchising and getting as big as possible? All too often franchisors have a tendency to sell as many franchises as possible in order to grow their concept, but there is a major flaw in that train of thought. Growing too quickly will set a franchisor up for failure as they will overextend themselves and start having to close down locations. As a result, it will become extremely difficult to sell the same types of franchises.
Q: What role does customer intelligence play in the franchise business and how does it impact decision making?
A: Customer intelligence is absolutely what separates the players who are growing right now from the ones who are not. When franchise groups have the best-in-class analytics providing them with a growth map and a growth plan to optimize territories, it speaks volumes – not only about their financial commitment to the concept, but their financial commitment to a potential franchise group, and what they are willing to invest into a franchisee being successful and making money down the line.
Searching for more answers to your big questions and want to continue the conversation? Contact us today.