Job Losses are a Potential Boom for Franchising
This article appears in the May/June 2014 issue of Business Franchise Australia & New Zealand
THE FRANCHISE SECTOR COULD BE A BENEFICIARY OF THE WORKFORCE CONTRACTION BY AUSTRALIAN COMPANIES.
In recent months the media has been full of stories about the collapse or imminent shut down of major manufacturers in Australia – Toyota, Ford, GM, the reduction in workforce numbers by miners such as Alcoa and then there are major employers like Qantas saying they have to cut 5000 jobs. The list goes on.
Headlines like “States face jobs crisis” and “up to 50,000 jobs could be lost in the next few years” have raised alarm bells with politicians, economists and employees.
There is no doubt that the manufacturing sector and many companies in other sectors in Australia are now at a critical point. Companies and employees are having to think about the repercussions of such announcements. However not all repercussions are bad. In fact, it could be the beginning of a cyclical boom for the franchise sector as displaced employees look for new opportunities and more control over their future.
In the recession of 1989 – 91 we saw unemployment spike but we also witnessed a golden period for growth of Australian franchise systems. Cashed up with retrenchment payouts and motivated to find a meaningful and more controllable work environment, many who lost their jobs purchased franchises. This recession affected both blue and white collar workers so the wave of prospective franchisees spread across most of the franchise sector.
Likewise with the GFC in 2008 – 10, many workers had their hours cut or lost their jobs. However this time many did not get the big retrenchment payouts and so the spike in franchise enquiries was noticeable but not prolific.
Now, between 2014 and 2017 as various companies wind down their operations in Australia, we should expect to see another spike in franchise enquiries and purchases.
How big, we do not yet know because employers will be hoping that many workers jump before the expiry dates and hence do not collect redundancy payouts. However there will be a large portion that will leave cashed up and wanting to find a secure and enjoyable work alternative.
Many of these people will be aged 30 – 55 and will have trouble finding another PAYG role due to age and competition for jobs. At this stage in their life, considerations about starting their own business or joining a franchise will be explored.
Also, just because many of the job losses will be in manufacturing companies, doesn’t mean we should overlook people coming out of white collar or head office roles. Many of them will also be displaced and therefore looking for the next opportunity.
All of this means that in the next few years there is likely to be a surge in franchise enquiries and sales across blue and white collar industries. Franchisors will have greater choice between prospective franchisees and the human capital and financial capital that underpins the franchise models will be more abundant.
Existing franchisors should recognise and position for this next cycle and owners who are thinking of franchising or licensing their businesses should be encouraged to take those steps as a key factor in their growth and success – availability of motivated franchisees that can afford to buy – will be stronger than it has been for many years.
What should franchisors be doing?
Clever franchisors will be developing plans to do three things:
1. Attract quality franchisees in geographic markets where they want to expand;
2. Help existing franchisees expand their operation; and
3. Create opportunities to replace selected franchisees with ‘new blood’.
Attracting new franchisees in preferred geographic markets
A long standing rule in franchisee recruitment is to recruit the person that is the right fit for your business, genuinely committed to it and has the hunger and energy to grow it and follow your systems. Retrenched or displaced employees will often meet this criteria but many will not. So stay true to your selection criteria and pick the best of what is available not the first that come along.
Think about your strategic plans. Which geographic markets do you need more franchisees in?
Rather than take a one size fits all approach to recruiting, customise or localise recruitment campaigns to those markets.
Adverts in local newspapers, geo-targeted Adwords campaigns etc can put your brand in front of people who are looking for a business.
If you seek franchisees in heavily affected markets like Adelaide, Geelong and many regional centres then opportunities exist right now to be marketing in those areas.
Also consider events like local information evenings where you have open invitations or targeted guest lists to showcase your franchise and attract potential franchisees. Many local clubs, community groups (like Mens Shed, sports clubs etc) will happily post notices for you as a service or point of interest for their members.
Help your existing franchisees to expand their business
Supply of labour into the workforce via job cuts means there are more people looking for work – many of these people will be open to offers of part time, subcontracted work or even just working for lower hourly rates. This can be an opportunity for your franchisees to expand their business by hiring cheap or flexible labour.
Many franchise models can be scaled at the franchisee level. Often franchisees operating within a territory are not optimising the customer opportunity. They have enough work to keep themselves busy so they don’t bother putting on extra staff, vans or equipment to fully work the territory. This is a frustrating position for a franchisor so here you can be proactive with such franchisees and help them grow their business.
The first step is simply to put the idea in their head. “What could it mean for your business if you were able to put on an extra staff member or casual worker?” From this conversation you can work up a plan to expand.
Large franchise groups like Hire-A-Hubby have developed clever investment models where there is a structured approach to encouraging and supporting franchisees who take on extra staff. This can organically grow the franchise without having to recruit additional franchisees.
Replace selected franchisees with new blood
This is an opportunity to benefit not just the franchisor but also the majority of franchisees.
Every franchise group at some point has under-performers, recalcitrant or noncompliant franchisees or people who have gone off the boil – they have lost the passion or just got lazy. These franchisees often lock up valuable territories, create negative sentiment within the group or worse still, stop or reduce the value of business re-sales because their performance numbers are poor or they are frightening off potential new franchisees.
It is the responsibility of the franchisor to identify and deal with this.
A commercial alternative to legal action is to find them a buyer. This buyer may come from the new pool of franchisees about to hit the market.
Such deals are not done overnight so franchisors should continue to enforce the franchise terms and values whilst encouraging the franchisee to seek a buyer. Usually some pre-work needs to be done to manage expectations about the sale price achievable but what this next job loss cycle means is there is likely to be more buyers in the market.
Smart franchisors will be creatively planning and working towards discreetly exiting their bottom 10 per cent of franchisees and replacing with fresh franchisees.
Similarly, franchisees who are considering selling their business should look to the next few years as an opportunity to find a buyer. If so, these franchisees should be ensuring they are ready and attractive for sale. Your books should be in order, your trading numbers strong and your customer base growing. Whilst there may be more buyers they will still be selective and still cherrypick the better businesses.
CEO Consulting specialises in developing, launching and growing franchise systems in Australia and international markets. Services include Strategy, Feasibility, Analysis, Franchise Model Design, Franchise Development, Marketing, Sale & Purchase negotiations, Franchisor and Franchisee Mentoring & Support.
Robert is one of Australia’s leading Franchise experts and an authority on Franchise start ups. Formerly the Australian Head of Franchising for both ANZ Bank and Westpac as well as CEO of RAMS Home Loans.
For further information contact Robert Graham, Managing Director at CEO Consulting: