According to Cronje, franchise systems are based on a proven model that can be successfully replicated. Because of this, these types of businesses are often considered less risky by entrepreneurs.
The reality, however, is that no franchise is immune to tough economic conditions — success factors vary depending on the concept, strength of the brand, management and the industry.
Here are six challenges that all franchisees (and franchisors, for that matter) are currently dealing with, to varying degrees.
1. Shrinking disposable income
According to Cronje, the biggest threat currently facing the franchising sector is one that is affecting all consumer-oriented businesses: A shrinking pool of disposable income. Simply put, people have less money to spend on luxuries thanks to an increase in living costs.
And, of course, there is little that can be done about this fact.
It is simply a reality that needs to be accepted and dealt with as best as possible.
If the pie as a whole is shrinking, the only solution is to try to increase your share.
2. Increasing competition
A problem that franchisors trying to increase their share of the pie are facing, is the fact that an increasing number of global (and very recognisable) players are entering the local franchising sector.
Burger King, Domino’s and Krispy Kreme have all arrived, and other brands such as Starbucks, Dunkin’ Donuts and Baskin-Robbins are on their way.
How do you remain competitive amidst such competition? “The battle for market share is increasing, with businesses constantly finding new ways of satisfying customers that favour value for money and convenience over price and ambience,” says Cronje.
Sure, brand recognition is important, but things such as value and convenience are also vital, and many franchises are choosing to focus on this.
3. Rising costs
As with the shrinking disposable income of consumers, the rising cost of many products is an economic reality that many franchisees are being forced to deal with. Issues such as the current drought have caused prices to spike, and passing all of these increases on to the consumer simply isn’t an option.
4. Falling staff morale
When business conditions are not great, some franchises can often not afford to hire more staff (or even bring in temporary staff), leaving employees severely stretched and demotivated. Job security issues are also heightened during this time, as some employees may fear losing their jobs.
Cronje says motivating staff and constantly updating them on how the business is doing is extremely important, since excellent customer service goes a long way during tough times.
5. Bad debts
When times are tough, cash flow inevitably becomes an issue. With interest rates likely to continue increasing throughout the year, Cronje believes franchises may find it difficult to service debt and borrow more money.
Because of this, it is important to be conservative and not over-leverage. Now is not the time for aggressive expansion.
6. Adapting to consumer needs
“Following a tried-and-tested model is no longer a guarantee for success in the franchising sector. Convenience and innovation in technology is increasingly becoming important to customers,” says Cronje.
Easy ordering and the ability to customise orders are becoming very important, with some brands even allowing customers to order with the help of a mobile app. Innovation is important, and brands that don’t keep up with the times will find themselves left behind.