The State of Franchising 2014

The hot topics in franchising continue to present challenges for franchisors and franchisees, both in the United States and abroad. In an attempt to bring clarity on the year ahead, 1851 visited with International Franchising Association President & CEO Steve Caldeira and Canadian Franchising Association President & CEO Lorraine McLachlan in separate Q&A sessions. Wages, healthcare and financing were some of the hotter topics across franchising last year, and they have affected the industry in ways that will continue to be relevant throughout 2014. With changes in the global economy and a number of social issues influencing the decisions made by small-business owners, it is difficult to predict what lies ahead. However, one thing is for certain: Franchising continues to be top of mind for many entrepreneurs and remains a viable option for investors that are looking for areas of opportunity. To gain a perspective on the state of franchising in 2014 in both North America and around the globe, 1851 interviewed International Franchise Association President & CEO Steve Caldeira and Canadian Franchise Association President & CEO Lorraine McLachlan. Steve Caldeira, IFA President & CEO Q: What’s next for the IFA in 2014? Caldeira: We need to keep pushing what we did in 2013 – continue to protect and promote franchising, which has continued to outpace the U.S. economy. We continue to grow steadily, which is healthy, while consistently working on the issues that are important for our members. Q: What are some of the challenges that the IFA saw in 2013 and how they might be able to combat these in 2014? Caldeira: We are trying to push comprehensive tax reform, immigration reform and better healthcare is our greatest initiative at the moment. For a multitude of reasons, we are also going to continue to work hard to make sure that we have strong relationships with financing opportunities, primarily the Small Business Association, and making sure that we keep franchising top of mind for all people. At the state level, we want to make sure that state legislatures understand about the franchise model and that franchisees are not employees, they are independent business owners. Some legislation right now is making it challenging for franchisees to sustain their brands. It’s putting franchisors and franchisees, as well as consumers, at risk by changing laws. In three-and-a-half years, the IFA has been 29 and 0 in state battles against legislation introduced against independent-contractor laws. It’s a sticky situation, but we feel it can all be worked out through education. We’re also going to keep fighting against the changes to the minimum wage. It’s hurting a lot of franchisees and the market should dictate the minimum wage. Q: What is your goal for the IFA in 2014? Caldeira: Our goal is to continue to grow the industry – not only for existing franchises – but also for new aspiring franchisors. We’re going to continue to push franchising as an industry where you’re working for yourself but not by yourself. This economy is far from being strong and robust, but franchising offers amazing opportunities for people who want to be in business for themselves as well as investors looking for stability. Seventy percent of our members are doing business internationally or thinking about doing business internationally, which is a good point of emphasis for us. It helps to establish credibility and educate people about our brands on an international level. In the last three-and-a-half years, our revenues have grown by 45 percent percent for the industry. We had a goal to hire 80,000 veterans and spouses in 2013, and we hired nearly 150,000 veterans – and we will continue to push franchising as a great option for veterans, military spouses and wounded warriors alike. Q: What’s one misconception about franchising that everyone should know? Caldeira: I think the general public understands that this is a business model where you can be an entrepreneur. You can control your own destiny, but have the support of the franchisor. When we go to Capitol Hill, they see some of these huge companies such as McDonald’s, and they don’t understand that the real drivers of the economy and job creating heroes are the local franchisees who are paying taxes and building communities. Lorraine McLachlan: CFA President & CEO Q: What do you foresee as the hot franchising trends in Canada, coming up in 2014? McLachlan: It’s estimated that there are approximately 1,200 brands with over 78,000 franchised units in Canada. The best thing to do is to talk about the trends we’ve seen over the past five years, based on growth by percentage. Over the past five years, some of the top growth industries have been business consulting, hair and nail salons, in-home senior care, casual dining restaurants, and health and fitness concepts. Restaurants went from 74 listings to 139 – giving that segment one of the largest growth [spikes] in terms of percentage and absolute number, while [the number of] business consultants started at nine and has grown to about 28 different concepts. They started fairly small in terms of numbers, but have grown exceptionally well as the business landscape has changed. Right now about 36 percent of CFA membership is foodservice-based and 64 percent is non-food-based. Q: Challenges that the CFA saw in 2013 and how they might be able to combat these in 2014? McLachlan: The environment in Canada is a little bit different than in the U.S. However, the challenges we’ve seen in franchising have been those that were affecting any small businesses through Canada. The greatest setbacks from the recession have been funding. Franchising has helped a lot with that because if you go to a bank looking for financing with the backing of an established franchise brand, you are typically more likely to find what you’re looking for. It’s extremely tough for all small businesses right now and franchising really gives them an edge. The CFA does not get involved in direct financing; however most of the major banks throughout Canada are members in the CFA. Q: How does politics play a role in Canadian franchising? McLachlan: Fiscal responsibility is always an issue when you’re talking about the mix of government and small business, because you don’t want to see a significant change that isn’t I the best interest of business owners. Politically there aren’t any really hot button issues plaguing Canada right now. We have had a long history of universal healthcare right now so that isn’t as much of a factor as it has been in the U.S. as of recent. Q: How does the CFA work to make it an even playing field for their members? McLachlan: We don’t view it as a matter of evening the playing field. We feel that the franchise model is a well-established and well proven model in Canada and allows significant advantages to small business owners, for instance with financing. We typically do a lot of outreach that is there for educating people about franchising and what opportunities there are for people. We also have a lot of resources in the form of trade shows, our extensive website and Franchise Canada Magazine. We want to help people really realize what it means to be a franchisee, not just to own a business, but rather it’s a business that you will be running with a system behind you. Not just an investment. It helps bring top quality franchisees to the Canada because we only want members and franchisees that are in line with this model. The importance of educating Franchisors on how to do things the right way as well is very important. Our members are very much of the mindset that a well-informed franchisee is a better franchisee. Q: Why people should look to Canada as a great option for franchising in 2014? McLachlan: Because we’re Canada! The longstanding friendship between Canada and The United States, the similarities between Canadians and Americans, allows for both countries to work extremely well together. There is extremely high brand crossover awareness with Canada and the U.S. Canadians are very aware of U.S. brands only located in the U.S. through television, movies, and travel. There are also many differences in Canada. For instance, we have a very different multi-cultural demographic and French is one of our official languages. There are a lot of the initial pieces to consider when moving into a new country. Luckily the similarities can help to make the transition easy between the two countries and the differences can help prepare people moving from the U.S. to expand into other countries. Q: What is your goal for the CFA in 2014? McLachlan: To be an indispensable resource to our members. It’s ingrained in our mission statement. CFA is trying to enhance advocacy efforts while being a great lead source for our members, which we measure through the members we attract and retain. Over the past five years we have gained a 12% growth in our system on the franchise concept side which is an indicator that Canada has been a great country for growth.