Your Franchise Growth Has Stalled. What Next?

Whether it happens after one year or 20 years, a franchise system may find itself dealing with stalled growth due to a variety of reasons. A chain might have started too fast without adequate staff or systems in place, for example, or perhaps it needs to better highlight franchisee success to recruit newcomers. Others may need to put their efforts toward building equity, restructuring at the corporate level or designing a new prototype that will boost unit-level economics.

1851 spoke with experts in the franchising industry to gather some insight on what franchisors should do if they find their franchise growth stalling.

How To Determine Why Growth Has Slowed Down

Since there are so many different reasons (and it’s usually not just one single reason) why a brand may be experiencing a slowdown in franchise growth, franchisors need to know where to look to identify the issue.

“One of the best ways to determine why franchise growth has stalled is to research yourself and see what people in the industry are saying about you,” said Lane Fisher, franchise attorney and partner at Fisher Zucker. “Franchisee validation is really the first thing that needs to be in place — how do the franchisees already in the system feel about the business, and are they recommending it to others? Franchisees may be critical of excessive fees, unrealized financial expectations or poor management. Without franchisee validation, franchise growth can be very difficult to maintain.” 

Fisher notes there are also several red flags that may appear in the franchise disclosure document and could be turning candidates away. “There are usually two things that are broken within an FDD: The financial performance representation doesn’t provide transparent insight into the underlying operations of existing units, or the numbers simply aren’t strong enough,” he said. 

Why Growing Too Fast at the Start Can Hurt Brands in the Long Run

Another common reason franchise brands may see a sudden dip in their franchise sales is because they grew too fast in the beginning. For example, Fisher says many emerging brands sign multi-unit deals too quickly without having the proper infrastructure in place. Developing or improving that infrastructure may require slowing down to fine-tune best practices. 

“You can’t rush into multi-unit offerings — you need to have a well-established, single-unit offering first,” said Fisher. “Early multi-unit growth isn’t necessarily a bad thing, but franchisors need to offer a standard, proven multi-unit development agreement instead of an unachievable, undefined giant development deal. You don’t want to have a bunch of multi-unit deals that never went anywhere or died after the first location. The right multi-unit deal within the right target markets can be a good strategy, but it is really something franchisors need to think through before agreeing to it, as the wrong deal could slow down growth in the long run.”

In regard to target markets, FranNet vice chairman and principal Blair Nicol notes arrested franchise development may also occur because franchisors don’t know where to grow or are too eager to sign deals. 

“Franchisors often take the first person who is willing to write a check regardless of where they are located,” said Nicol. “That is the wrong thing to do, as the first few franchisees will be the validators for future franchisees, and they need to be close to the team. Franchisors should grow around where they are based, hiring a tenured corporate support team who can provide hands-on assistance to local franchisees. Without good, regional growth, a franchisor may find their franchise growth slowing down because they’ve spread their resources too thin.”

How to Restart Franchise Growth 

Once a franchisor determines the flaws in its system, it will be able to create a plan for restarting growth. For example, if franchisees have a lot of complaints and feel as though they aren’t being heard, creating a franchise advisory council can be an effective tool to address the issues in an organized way. If franchisees feel as though they aren’t being supported in operations, then it may be time to reinvest in corporate support hires. 

Fosters Freeze, the 66-unit ice cream and burger brand, is a prime example of how a franchise can be brought back to life. The franchise, which was established in 1946 and grew to more than 300 locations across the West Coast at its height, struggled through a 15 year period of absolutely zero franchise growth in the early 2000s. Although the brand was a fan favorite, the corporate team had done little to encourage growth and support owners, and the franchise system suffered as a result. 

In 2015, restaurant and franchise industry veterans Neal and Nimesh Dahya took over the franchise with a plan to revamp growth through a commitment to franchisee support. They made a point to listen to feedback from the brand’s current franchisees and instituted a range of effective new resources based on what they heard, including marketing support, technology, site-selection for new stores and a streamlined new menu that reduced food costs. Across the system, sales have increased every year since the Dahyas took over, and the brand is finally starting to sign new franchise agreements.

“This is a franchise that for many years just wasn’t treated as a franchise,” Neal told 1851 Franchise. “Every franchisee owned and managed their store pretty much independently without any support from the corporate team, and the corporate team put virtually no investment into growing the brand. The more you invest in the franchisee, the better their business is going to perform, and the better the entire system is going to do as a result.”

Once all of the systems are in place, Nicol notes franchisors may also need to take a good hard look at their franchise development marketing efforts. “Growth may have stalled because of a flaw in the system, but brands also need to make sure they have an effective strategy for bringing in new franchisee leads,” he said. “If you’re confident the system is ready for growth, start to consider broker groups, online marketing tactics and portals. Another good strategy is a tier-referral system in which established franchisees refer new owners to the franchisor.” 

By keeping all of these factors in mind, franchisors can create a vision of growth and a solid action plan that both franchisees and the corporate team can get behind. With the right growth strategy, franchisee validation and support infrastructure in place, franchisors can reignite the spark that started the franchise in the first place.