The rate of change we have experienced in the last six weeks has been unprecedented and last week I realized it was important, as an industry, that we get a clear indication of your experience since entering into lockdown conditions.
Our response rate passed 120 people and includes franchisees and franchisors from our emerging right through to our iconic brands providing a real time snapshot into just what our collective experience is.
(Answer choices in order above: A spike in revenue I didn’t expect, Normal growth, Maintaining the status quo, maintaining the status quo but not sure how long I can hang on, I’ve had to close the business, I’ve seen a drop in revenue of less than 50%, I’ve seen a drop in revenue of more than 50%)
Like many parts of the economy, the franchise sector has been hit hard by the lock down, with 67.5% of respondents experiencing a drop in revenue or having to close the business.
44% have been hit exceptionally hard with a drop in revenue of greater than 50% or a total loss of revenue due to closing the business.
Conversely, a small percentage have experienced a spike in sales (6%) or experienced normal growth (6%).
Just under 10% are maintaining the status quo or are trying hard to maintain the status quo and unsure if they can continue to manage the situation. Which means 22% of respondents are ‘travelling OK’.
What’s interesting is the type of companies that have been experiencing a spike in growth in their business. These businesses include basic food stuffs that benefited from panic buying and protective personal equipment.
Normal growth has been experienced in some takeaway food outlet (where takeaway is their core business rather than a restaurant style of operation), some auto maintenance and related auto parts retailers, couriers and in-home care services.
Others maintaining the Status Quo are many within the Home Services category (e.g home cleaning or lawn mowing) and those that are managing the Status Quo, but not sure how long they can hold onto it include business services (eg financial services), some takeaway food outlets, pet services and legal services.
Those suffering from the greatest downturn (revenue drop of greater than 50%) belong to services that are located in shopping centres. For example, some brands of cafes, food court outlets, and clothing/footwear retailers. Those that supply services around new home purchases have also been hit hard.
Another group hit hard are around children’s services which have experienced a drop in sales of over 50%. For example, tutoring or after school care have seen income drop dramatically.
What Does All this Mean?
There is no question that the franchise sector has taken a large hit, although there are pockets keeping their head above water.
What we will see over the six months post lockdown are increasing numbers of franchisees looking to sell their businesses. This may not be due to a lack of franchisor support but rather being in too much debt, with little revenue and unable to ride out the downturn. This time of lockdown has also been one of deep reflection for many and we may see a number of franchisees wanting to change their direction once this is all over.
History has shown there is also an upside to recession for the franchise sector as there are increased numbers of people looking to buy a franchise. This is because increased redundancies result in people wanting to take control of their future. Many Australians dream of owning their own business and a redundancy can spur on action in this direction.
We may also see marginal franchisors, who have not invested in their business models, go to the wall in increasing numbers, particularly those models that rely on discretionary spending. The current situation could, in fact, be seen as an accelerator to a situation that may have arisen anyway. Some of the challenges in the sector have been well documented in the past 12-18 months: increased franchise conflict and significant margin compression resulting in less profitable franchises in some systems.
It is true out of adversity can come great opportunities and I’m reminded of the Chinese word for crisis that is made up of two character: danger and opportunity.
So right now, do you see just danger or are opportunities presenting themselves to you?
What does this mean to you and your business?
And right now, where do you need the most help?