Nick Powills breaks down the industry’s most well-positioned brands and segments.
The state of any given market was hard to pin down in 2018. By most accounts, the economy grew consistently throughout the year, but a tumultuous political landscape and the looming threat of escalating trade wars sowed anxiety among business owners and investors. Millennials, who have long posed challenges for legacy brands across segments, have all but proven that they are not going to settle into the buying habits of previous generations, and a younger, equally finicky generation of consumers is beginning to flex its buying power.
The picture does not look any clearer in 2019. Many analysts are predicting an economic downturn, though it’s unclear when exactly that’s likely to happen, and after two years, the Trump presidency remains as unpredictable as ever, ensuring that business owners will need to remain on their toes.
Still, there are some clues as to what segments are likely to do well in 2019. Nick Powills, Chief Brand Strategist at No Limit Agency and Publisher of 1851 Franchise, works closely with franchisors from a range of categories, and he’s not afraid to make predictions about what 2019 will look like for the industry.
If you’re looking to invest in a new franchise brand in 2019, here are the features Powills recommends looking out for.
If you look at the biggest challenges businesses are facing this year, labor is at the top of the list. Good labor is hard to find. Everyone wants to hire people who are highly qualified and align with their core values, but you have to start making compromises because the workforce isn’t at its strongest and you need bodies.
Businesses that have refined their labor models so that they can easily manage small, effective staffs are doing well compared to high-labor models. There’s a franchise called Big Blue Swim School that’s really well designed in that respect. They don’t use part-time staff, only full-time, so they have low turnover for their segment. Fat Tuesday is another great example. It’s a frozen-drink bar concept where all the drinks are prepared in advance, so you really only need one person tending bar.
It may not come in 2019, but the economy is due for a correction, and when that comes, and when consumers start tightening their belts, a lot of franchise brands are going to be hurting. The concepts that can keep a healthy customer base during a recession are the best bet right now. Haircuts, children’s education, tax services; these are services people need, and they are going to keep using them even when they have to cut out other luxuries, like eating out.
Health and Wellness
Health and Wellness is a category that is top-of-mind for consumers these days. People are much more concerned with health and how they are taking care of their bodies than ever before. It’s a segment that has a lot of room for growth. The thing to keep in mind is that it’s all about convenience. Consumers have plenty of options when it comes to gyms and spas, and they are going to go to the ones that are close to them and offer an easy, consistent experience. Brands that are strategically located and can offer a quick and easy customer experience are going to do well this year.
Niche-fitness models and 24/7 gyms have been doing great in large part because of their membership models, which ensure recurring revenue. And now we’re starting to see other segments adopt the model. PROSE is a really exciting new brand that is applying the membership model to a nail-salon concept, and it is generating a lot of buzz.
The key is keeping it low-cost. When there’s a turn in the economy, people are still going to want gym memberships, but they are going to be seeking out the lowest-cost options. Some of the high-cost concepts are going to lose a lot of customers, and that could be a big opportunity for lower-cost concepts.
The food brands that are still resisting third-party delivery services are going to have a rough time in 2019, and the ones that fully buy in are going to do much better. The GrubHubs of the world are spending millions on tech. Why would a franchisor try to compete against that with their own model? It’s not feasible. This gets at a larger point, which is that a brand’s preferences don’t matter; it’s the preferences of consumers that matter. The brand’s that embrace that and are willing to adapt to stay relevant will do so.