Are US-Based Franchises Making it Past the First Year?
On paper, venturing into the franchise business is easier than establishing your own. Aspiring entrepreneurs are lured into the idea because it entails adopting a proven and successful brand concept, rather than starting from scratch. Additionally, most franchisors readily provide the support and training for you to reach your business goals.
Franchises comprise more than 1 in 10 businesses in the US, with quick service food establishments making up about 26% percent of all franchise businesses. However, it should be noted that many food franchises have ceased to last for more than a year. According to the BFS Capital eBook on how to run a restaurant successfully, about 60 percent of independently owned and franchised restaurants fail within 12 months of their opening date. The primary reason for the short lifespan can be chalked up to an improper business management. The Balance iterates that the causes for failure are often found in the decisions made even before the franchise was opened. Factors like poor location, inadequate financial resources as well as debts can already pre-determine a franchise’s survival rate.
Another reason for getting tanked would be the relevance of the business to the consumer. If it fails to connect with the target audience, chances of its success are slim. The first priority of a business professional is to understand the wants and needs of the consumer.
However, things are looking up for franchises. The industry in the US is projected to expand by 1.6 percent in 2017, based on a CNBC report. The personal services sector is expected to increase the most at 2.3 percent, followed by quick service and full service restaurants at 1.9 percent. With this increase, the country’s GDP is set to rise from last year’s $405 billion to $426 billion. The forecast is in relation to several new business trends emerging in recent years.
For instance, the food service franchise increase can be attributed to rise of food trucks. Since it’s still a fairly new industry, it’s difficult to determine whether it will last in the long run, but it is currently growing at a rapid pace.
Since the Baby Boomer generation is already aging, the millennials, who make up most of the US workforce today, are now considered the driving force in the franchising industry. QSR Magazine provides an insight on why franchisors are attracted to millennial entrepreneurs. Since these young franchisees are social-media oriented, they can help generate buzz without any advertising costs as well as improve public relations on the brand. Technology in itself impacts the franchise’s survival rate, and the millennial behavior boosts it.
Another trend to consider is multi-unit ownership, where entrepreneurs are adding more than one franchise business to their resumes. Naturally, more franchises rake in more money and helps with sustainability.
Before getting into the world of franchising though, it is important to weigh the benefits and the risks. For reference, check out Franchising USA Magazine’s previous post about finding the best franchising opportunities. It was mentioned that the top benefit an entrepreneur can get from a franchisor is startup assistance. This readily provides the franchisee the required knowledge that would otherwise take years of experience to acquire. Furthermore, if the business has a strong brand equity, the franchisee usually don’t need to worry about its success rate.
Still, success can be bogged down by several factors, one of which includes the franchisee’s reluctance to follow the system. If this happens, conflict will arise with the franchisor, complicating the operations of the business. Also, the franchisor’s ability to change the system can further affect the establishment’s profitability.
But overall, the US franchising industry’s future looks bright. Because of new trends and technology, owning a franchise is now a more attractive venture than it was a decade ago.