How to Overcome Troubles That May Hit Franchising in 2015

In 2015, franchising will continue its astonishing growth, as International Franchise Association (IFA) and economic analysis company IHS Economics forecast in their report.

Despite a bright general outlook, it’s not all birds and bees for franchise businesses. There are several regulatory storm clouds looming that can rattle the walls and blow the revenues away.

Kris Hiiemaa

During the past five years, franchised businesses have created more jobs at a faster pace than the rest of the economy, not to mention revenues, which are higher than average. The growth of franchising can be attributed to the rise of cloud technology and affordable franchise software that make it possible to handle large business networks.

As a result, in 2015, the franchise industry is expected to contribute about 3 percent to Gross Domestic Product (GDP) of United States. Franchise sector will grow more than 5 percent, i.e. to $521 billion in this year, IHS Economics predicts.

Franchising is an American success story,” said IFA president Steve Caldeira. “Independent, locally owned small-business, men and women, including more veterans and minorities, I might add, who own and operate franchise establishment are growing faster than other businesses.

They are creating more jobs at a faster pace than other businesses and they are also producing more sales growth than other businesses.

Franchising Outlook for 2015

Seeing the excellent results the franchise industry gained in 2014, it is no surprise that IFA shows a high level of confidence.

The ADP National Franchise Report reveals that the franchise industry accounted for 38,000 new jobs in December 2014, the highest figure of the year.

Almost two-thirds of these new jobs were created by the restaurant industry.

IFA and IHC Economics predict that in 2015, franchise businesses will add 247,000 new jobs in the United States. This adds to the 235,000 franchise jobs added last year.

Comparing to U.S. business in general, total private sector nonfarm employment is projected to rise 2.4% in 2015, while employment in franchise establishments is expected to increase 2.9%.

The most fast-paced industry sectors are franchised real estate and commercial & residential services, this is if housing market recovery picks up as expected.

IHC Economics expects sales results of franchise businesses in the real estate business line to increase 6.3% in 2015 compared to 4.8% growth in 2014.

Three Things Retail Businesses Fear in 2015

According to the IFA, there are three big concerns for retail businesses:

– National Labor Relations Board’s “joint employer” decision;

– Minimum wage laws;

– Obamacare’s definition of full time employees.

“However, there is considerable downside risk to this forecast due to the uncertainty created by a recent ruling by the NLRB that considers a franchisor as a “joint employer” with its franchisees,” the report states.

“If this ruling survives legal challenges, it will impose additional costs on franchisors associated with the need for more oversight and insurance against risk.”

The report continues: “Uncertainty about how this issue will be resolved could impede the growth of franchise business formation, employment and output – causing the performance of the franchise sector to fall short of this forecast based on economic fundamentals.”

Ninety-seven percent of franchisees polled by the IFA believe that the joint-employer ruling would have a negative effect on their business if it were to go into effect. The major issue is uncertainty.

The report states that on average, output per employee in franchise businesses is estimated to be $98,452 per worker in 2014 and is forecast to grow to $100,843 in 2015.

This output-per-worker ratio varies within the s10 franchise business lines from a low of $59,040 (table/full service restaurants) to a high of $216,850 (automotive) in 2015.

As for now, the joint employer ruling only applies to McDonald’s. The official reasoning behind the decision hasn’t been released, so it is not clear what effect does it have on other franchise businesses.

How Franchises Can Fight Joint Employer Issue?

So how to overcome the fears? While one could wait for the dust to settle, clearly this is not a way to go for a franchise business that wants to be among the industry leaders.

It is much better to take a proactive approach, and deal with possible obstacles. Franchise software and retail software solutions can go a long way in cutting costs elsewhere, without compromising business growth.

Here are 5 ways how advanced franchise software will make you feel comfortable in 2015.

1) A good franchise software suite provides your franchisees their own business management software instances.

Franchisees are given their own franchise software instance, i.e. practically an individual business management software interface. Franchise software still allows cross chain visibility for specified elements, like gift cards or sales promotions.

It is important for your franchisees to feel as if they are an entity of their own, and not being strong-armed by headquarters, and it might help in convincing NLRB that it’s not a “joint employer” case.

2) Franchisees can go a long way in optimizing their inventory levels, if they’re provided with right kind of retail software.

The goal for any retailer is to maintain proper inventory levels and never to run out of popular items. Inventory management software is there to help.

The mother company can power franchisees with central inventory software, so they can use stagnant stock from stores with low sales velocity.

With proper franchise software, franchise supply chain can be as smooth and sales history based, as it is in big retail chains owned by a single holding company. Improved inventory sell-through improves the turnover of franchises.

3) Reduced carrying costs and shared logistics give franchises a competitive advantage.

Franchise software, integrated with cross-chain retail software solution, helps reduce carrying costs. The franchisees can automatically source products from multiple inventory pools based on custom business rule sets.

Cost cut is evident. Besides the cost cut, there’s beautiful pro-growth philosophy in it. The wider the franchise network, the more potential there is for supply chain optimization.

4) Centralized price list management is like modern democracy, providing a framework in which the franchises can operate freely.

“Omni-channel sales experience” is widely uttered nowadays. Customers are used to consistent price levels and cross-channel loyalty programs.

A large national franchise chain, not to mention internationals, has a large variety of merchandize and prices to handle. A franchised brand needs a unified price image, but still there are many suppliers, plus regional and seasonal differences.

Price list management that comes with advanced retail and franchise software provides prices that are easily adjustable to marketing campaigns, supply levels and supplier/manufacturer prices.

In franchise software interface, franchises can have different price rules that reflect local supply and sales levels.

Besides that, price list management offers customer loyalty program integration and targeted marketing to customer groups. All this is to make the franchise chain flexible, so it can act fast on legislative changes and economic fluctuations.

5) Franchise software provides reports that drive growth.

An excellent retail and franchise software suite, if used for a franchised business, provides individual franchises with a “mass construction weapon”.

This is knowledge. Reporting tools are not limited to headquarters, though this is the place where reports on sales, cash, point of sale, inventory, purchasing, CRM, employee management go in real time.

With advanced retail software, individual franchises can be given the right to see a part of valuable business statistics, of course without drill down on other stores or other sensitive data.

For example, when a franchise opens in 2015, it can be provided with several years of sales history, and sales history of merchandize groups. The franchise owner can then make correct decisions not only on inventory levels, but also about other business aspects like the need for seasonal workers.

No Need for Franchising to Slow Down

In conclusion, the retail industry and franchises have many fears related to minimum wages and employee management.

While these certainly have effect on how franchise businesses operate, their growth does not have to slow down if adequate measures are taken. Franchise software is there to save businesses from trouble.

There are so many processes that franchise software can help to optimize. Dedicated franchise software makes it possible to implement cross-chain integration without jeopardizing freedom of individual decision making that is a core concept in franchise industry.

The enterprise management and franchise software tools that have driven retail industry, has still many features on tap that can improve any business model, including franchise chains.


About the author
Kristjan Hiiemaa
Entrepreneur building better POS and cloud-based retail management suite . Product guy. CEO & Founder of Erply.