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Why Franchisors are Struggling to Open Many of the Units They Sold After the Pandemic

With ongoing labor issues and rising costs, the pandemic-era boom in franchise sales has yet to come to fruition this year.

Following the onset of the COVID-19 pandemic and the uncertainty of 2020, franchise development actually experienced an upswing in 2021. With more people reevaluating their work lives and taking control of their own futures in a trend dubbed the “Great Resignation,” interest in franchising grew exponentially. Additionally, many private equity firms began investing more money in the industry, and multi-unit development saw an increase as well. The result was great sales numbers for many enterprises and emerging franchisors — FRANdata estimates total franchise establishments reached 774,965 in 2021, with a growth rate of 2.8%, faster than most years’ historical growth.

But now, in 2022, many of those units remain unopened, as a new article on reports, leaving many industry experts wondering whether that perceived boom in franchise development was a fluke.

“There is a significant and surprising backlog of new owners — companies and individuals alike — itching to get going, but many franchisors have sold more units than they can open,” the article states. “Franchise development isn’t truly growth until the doors are open.”

The article points to several reasons behind this stall in unit-level openings. For one, the pandemic is continuing to impact operations, especially when it comes to restaurants. In addition, labor shortages remain at record levels, despite a notably low unemployment rate. According to a survey from The Harris Poll commissioned by staffing franchise Express Employment Professionals, 42% of U.S. companies said employee turnover increased in 2021, costing them an average of $26,511 in lost productivity and recruiting. This, along with rising inflationary pressures, is creating a tough environment to start a business. 

Overall, franchisors of today will need to plan for the challenges of tomorrow if they hope to open up all of those locations they sold yesterday.

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