Continue learning about franchising beginning with this free report: 7 Habits of Highly Effective Franchisees. Get it now by subscribing to my newsletter!
Have you heard what I’ve heard about franchise sales in 2009?
As the story goes: They’re dead in the water!
“We haven’t sold a franchise for all of 2009,” is the oft-stated comment that I hear from franchisors.
Franchising’s worst year ever?
Some experts predict franchise sales will be off by more than 50 percent this year, and when it’s all said and done, franchising will turn in its worst year in decades!
You’ve heard it, too?
No money, no franchise sales
Without financing, no one can buy franchises. It seems no one’s got any money, or they don’t want to spend what money they’ve got, or they can’t borrow money! Consequently, in spite of plenty of leads, no one is selling franchises. Pity the poor franchise sales people.
I frequently hear the following explanation: “No one can borrow money right now. Consequently, no one can sell franchises.”
What’s really going on?
One of the crazy things about franchising — for all of my 30 years in the business — is that you can’t depend on popular opinions. Another crazy thing: Some employees of franchise companies consistently depend on popular opinions to justify whatever their situation may be at the time! Boss: No one is selling franchises!
If you listen to popular opinions, you could easily conclude that franchise sales got passed by in 2009.
And yet, it’s anything but true.
A thousand franchise sales?
To wit: It took me only minutes — just enough time to write a brief email — to discover that a handful of companies have sold more than a thousand franchises in 2009, or in the last 12 months.
From small investments to big investments, from service franchises to food franchises, franchise companies are selling franchises and don’t let anyone tell you otherwise! (Unless, of course, that’s what you want to believe).
Smashing sales records
Some companies, in fact, are selling franchises in record numbers!
Perhaps you heard that The Dwyer Group broke sales records twice in 2009.
Twice!
The company that Don Dwyer founded sold 44 franchises in June alone! And the company’s leadership projects selling more than 300 franchises in the worst economic downturn since the Depression.
“Yea, but those are inexpensive, service businesses that Dwyer sells and finances,” the critics will justify.
Hundreds sold this year
Then explain this: Smashburger — heard of them? — has sold 300 units already in 2009! You can’t qualify to buy one unless you’ve got minimum financial net worth of $2-million and liquidity of $500,000. No small potatoes. Competitor Five Guys — where you only need “about $1.3 million net worth,” per the Web site – is also enjoying record sales: more than 1,500 units sold nationally. I’m talkin’ hamburgers and fries, for cryin’ out loud!
And recession be damned — a downturned economy isn’t keeping buyers away from frozen dessert franchises. Red Mango, with the initial investment ranging from $261,000 to $437,600 (and you only need $350,000 net worth) has signed agreements for nearly 200 units this year. Other competitive dessert concepts, i.e. Tasti D’Lite, are selling franchises, too!
Want more?
- Puroclean, a Dwyer competitor, projects 100 franchise sales this year.
- Senior Helpers has sold 80 units in the last 12 months. Competitors ComForcare Senior Services has sold 40 new territories to 32 new franchisees, and Comfort Keepers has sold 30 new units.
- Sales are percolating outside the USA, too: Sign-A-Rama has sold six master licenses so far this year and expects several more before year’s end.
Why they’re selling
Franchise sales veteran Jason Killough, who sells for newcomer College Hunks Hauling Junk (eight sold so far this year), notes that service businesses are selling because “they are relatively low investment franchises” and “financing is easier to get for these concepts.”
“Home-based, service-based, truck- and mobile-based concepts are selling,” he reports.
Depending on the industry, however, office-based and retail franchises are selling, too. Look at senior care. Jeff Johnson, founder of Franchise Research Institute, says he attributes the success in the senior care sector “to the downsizing of many corporate executives looking for self-employment, the growth in the over 65 population, the fact that the over-65 demographic is going to more than double in the next 20 to 30 years, and the fact that the investment level for this franchise category is very reasonable.”
Sales of “healthy treats” franchises, according to Monica Feid at BizCom Associates, which represents Red Mango, are occurring because “Health is in and tart yogurt is on trend.” It also helped that her client offered “Red’s Real Deal” as a sales incentive earlier this year — that program offered a $10,000 discount off the franchise fee and promised to buy back any first store if the franchisee was not completely satisfied six months after opening. “Our client had some skin in the game,” says Feid, “but that program has ended. Red Mango is now getting so many leads, and they’re concept is so good, they don’t need to provide the incentive.”
Even more reasons for sales
But how can anyone possibly explain selling hamburger franchises?
Here’s how:
- They sell only development agreements. At both Five Guys and Smashburger a franchisee must be able to open at least five units.
- They sell exclusively to experienced, multi-unit, typically multi-concept operators who are looking for growth opportunities. Bankers love those folks and will finance them!
- They tout compelling, extraordinary unit level economics. Another bingo for the bankers!
- They have sizzling franchisee validation. Perhaps more important than anything else these days!
- They can take advantage of great retail space with historical lower rents (true for other food and non-food concepts, too).
It’s really franchising as usual
Truth is, nothing much has changed in franchise sales . . . except perhaps the attitudes, expectations and beliefs of the people selling — uh, trying to sell – franchises. For example, if anyone at The Dwyer Group (a company I’ve known intimately since the late 1980s) ever even thought they couldn’t sell a franchise for any reason — doesn’t matter what it is — the ghost of Don Dwyer would run them out of Waco, Texas, and possibly out of franchising. As well it should!
No one is going to convince the folks who are selling franchises that no one is buying franchises, or that no one can borrow money (FranFund CEO Geoff Seiber reports he’s as busy as ever finding money for clients), or that their franchise sales will miss a beat in 2009.
Why you’re not selling franchises
There are franchisors that are not selling franchises, but if you listen to the leadership of those companies, or you speak to the franchisees, or you dig into their Franchise Disclosure Document, you quickly realize why.
If you’re not selling franchises:
It’s not the economy! (If you think it is, re-read this blog).
It’s probably your sales team. (Now’s the time to upgrade . . . there are good people looking for opportunities).
Or it’s your deal. (Could be it doesn’t work economically, it’s lost its appeal, or it’s tired. Now’s the time to fix it).
Or both. (In that case, fix both, or do franchising a favor and move on to something else).
Franchise misfits aren’t buying!
Franchise sales are not dead in the water in 2009. However, there are some “dead” and “dying” franchise concepts that got exposed in the economic downturn and they can no longer enhance the franchise sector’s overall sales numbers. Those concepts offer no compelling value proposition for customers, no enticing unit level economics for savvy franchisees, and consequently they’ve lost their validation among franchisees.
Now here’s what’s different: The folks who used to buy franchises because they didn’t know any better, or didn’t do their homework — the franchise misfits who typically get burned then realize they’re losing their retirement and run to the media to cry about the horrors of franchising — those folks can’t get financed now, and they’re not buying franchises.
And to that I say: Hooray for franchising!
Coming Soon
How To Capture & Keep The Right Franchisees! A webinar for franchisors and franchise developers. It’s more important than ever to cultivate your franchise network, but many franchisors are struggling, and will continue to struggle, because they captured the wrong franchisees. The sooner you know what makes a right franchisee, and then capture only those kinds of franchisees, the sooner you can put your franchise company on the road to recovery and into the franchise limelight. Want to know how you can register for this webinar? Click here and ask via email!
Email this post
Tweet This PostSee more:
{ 6 comments… read them below or add one }
Thank you John for this article. I work for Red Mango and it has been fabulous!
Mark
It’s a blessed year for franchise sales. You can add a little startup that started franchising in June 2008. So far ShelfGenie has 77 units sold. Oh yes, there are no Development Agents or Master Licenses, just individual sales. And since there is no brink and mortar, they’re operational. Yep. Franchise sales are happening.
Twitter: @sessler
Thanks John. Spot on as usual. We anticipated higher franchise sales than we have gotten this year but we have been able to do a few along with a number of new development deals and we are currently looking at some financing options that we think will increase the throughput.
Twitter: @AngelaMegasko
Great post John! As the owner of a nationwide mystery shopping firm, we are finding that more and more franchise corporations are paying attention to how their franchisees are doing and what the public thinks of the level of service that’s being provided through the secret shopping process. I love the fact that you pointed out that not everything can be blamed on the economy. Sometimes a company needs to take a critical look at its offering and operations. Thanks!
Angela Megasko, Pres.
Market Viewpoint, LLC
http://www.marketviewpoint.com
http://www.AngelaMegasko.com
http://www.twitter.com/AngelaMegasko
Glad to hear about successes!
But, how important is it to each of you that these people are the right profile vs. just a franchise sale? Do they have the right stuff to execute your business model? How do you know? Do you use any type of benchmarking of the existing owner/operators?
Do you have any further responsibility to your organization after the sale is made? Or, do you move on to the next sale?
Twitter: @aquaspheres
Great to hear success stories. Franchisors who offer value for money, the right concept, a motivated audience, fast ROI and a simple to follow system will always attract the correct buyers, no matter what state the economy is in.