The Franchise Industry Year in Review

by Ed Teixeira

Here are some franchise industry highlights from 2012. Many of these trends will continue into 2013.

As 2012 began, the franchise industry was attempting to swim against the tide of the Great Recession that began in 2007 followed by a major downturn in 2008. Although economists announced that the Great Recession ended officially on June of 2009 the negative impact continues. The fallout from this event has continued to hurt the growth of the franchise industry. In addition, a number of judicial decisions also impacted franchising. On the positive side several franchise sectors continued to experience healthy growth.

• The lack of credit availability for small businesses continued to limit franchise growth. Financial experts predict that lenders will remain stingy and tight credit will continue into 2013 and perhaps beyond. Look for sluggish franchise growth to continue in 2013.
• The loss of wealth that resulted from the Great Recession severely limited the ability of prospective franchisees to access capital from home equity and investment funds. Home equity funds have historically been a source of capital for small business and franchise start-ups. Although the housing market will continue its slow recovery the availability of home equity funds for franchise investments will be slow in coming.
• The uncertainty emanating from Washington DC resulting from potential tax increases, the introduction of the Affordable Care Act and impending spending cuts has created apprehension for existing business owners and those considering starting a franchise.
• Several lawsuits in Massachusetts against cleaning franchisors Coverall and JaniKing resulted in rulings that were unfavorable for the franchisors and the franchise industry in general. Look for more activity in this area as appeals are heard and more cases are brought on behalf of franchisees in other states. In order to avoid an employer-employee relationship franchisors will need to be cautious when it comes to the degree of control exercised over their franchisees
• The homecare franchise sector continued its dynamic growth in 2012 fueled by low franchise start-up costs and a market that continues to provide strong demand for services. This franchise sector will continue strong growth in 2013 and beyond.

• Children’s services and franchise concepts directed to the growing Hispanic population will grow in popularity and variety. The health food segment has emerged over the past few years and look for this segment to grow in popularity.
• The year 2012 saw the most aggressive effort by franchisors I call recall in terms of using financing tools to attract franchisees. Discounted franchise fees, the financing of
• franchise fees and other financial assistance programs will continue to be utilized by franchisors in 2013.
• A number of franchisors found the International market an opportunity for expansion in 2011 and 2012. Look for more franchisors to try and export their franchise into other countries in 2013. However, some franchisors will fail at international expansion because they lack the resources, knowledge and right product or service.

As we enter 2013 we can expect the performance of the franchise industry to resemble 2012 in a number of ways, as the U.S. economy continues to recover from the Great Recession.

© 2012 FranchiseKnowHow, LLC

Ed Teixeira is the President of FranchiseKnowHow, LLC. He can be reached at franchiseknowhow@gmail.com