Economic uncertainty is nothing new to entrepreneurs, but franchise systems are uniquely structured to soften the cost pressure, tariff and inflation shock. Taking advantage of the economies of the scale, innovating the supply chains and maintaining strong lines of communication, the franchise can give a competitive advantage to the franchise that is often decreased in independent operators.
To find out how the franchisees are adopting and protecting the lower lines of the owners in these disturbed economic time, entrepreneur Talked with 20-year-old industry veteran Nick Pavils, the Chief Development Officer of the mainland, the communication and material marketing agency in Chicago focused on franchiseing and multi-place businesses. He explains why franchising is naturally flexible, which are to cut smart franchise costs and where the model still needs to improve.
Reactions have been edited for length and clarity.
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What is this about franchising model that makes it flexible for economic shock?
It has several pieces. On the franchise development side, unrest actually increases interest in buying a franchise. Many times, when someone buys, this happens because they have experienced career disturbance – such as shutting down – and no longer want to work for anyone else.
On the B2C side, the franchising scale provides economies. Even a 10-unit restaurant brand can interact on better purchasing power for the cost of fixtures, supply and food than an independent. It draws pricing and helps the franchise to protect its margin. Smart brands begin at the engineering cost in their supply chain, so the franchise is deployed for profitability from day one.
Tariffs and inflation often hit the supply chains first. What strategies are the franchise using franchisees from those pressures?
Smart people first focus on profitability. The approach of a food brand for menu innovation begins with the cost of food – breaking every component before rolling an item. In this way, franchisees are not forced to sell exciting products that do not make them money. When cost – for example, beef or chicken – swing up, can adjust your marketing to push objects with more stable margin like food franchise fries. It protects both the profitability and customer experience of the franchise, as the consumer is not constantly looking at the price increase.
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Outside the meal, have you seen the franchise in other categories in important ways?
Yes, but there is also a risk. Some brands eliminate operations. If a power-washing company suddenly adds gutters, it can derail operators that thrive under simplicity. Most franchisees are strong operators, not entrepreneurs – complexity damages them. On the positive side, some brands are newly renewed by diversity. Correct, they compensate for adjustment costs and build new revenue without franchisees.
How did the epidemic change how to prepare the franchise for economic unrest?
During March 2020 through 2021, communication touched the sky. The franchisers were conducting daily calls, whatever was to help the franchise survive. It later created record sales as it strengthened the community and customer loyalty. The challenge is that many brands have slipped back into old habits – limited support, low communication. People who maintain those strong connections are still doing better.
Related: ‘Send a man next time’: How an entrepreneur and his daughters built a $ 2.5 million franchise in a male-dominated area
When the time is difficult, how important is the communication going on between the franchise and the franchise?
This is important. When a franchise buys, suddenly they need to be an expert in HR, supply chain, marketing and community engagement. It is heavy. Franchisers keep the keys for operational support – which is why franchisees pay royalty. When the brands do over-communication and over-support, it pays in royalty as they perform franchises better.
Looking forward, do you expect franchise to continue innovating in cost savings, or the model is already adapted?
There is a lot of space for improvement. The cost of building a franchise has skyrocketed, so innovation is necessary. Franchisees also compete with each other for candidates. If we do not protect the franchise – people who risk our life savings – models are the only ones suffering. Things such as broker commission require more stability, best practices and fairness. The future of franchising depends on the owners support the correctly and give them equipment to succeed.
Economic uncertainty is nothing new to entrepreneurs, but franchise systems are uniquely structured to soften the cost pressure, tariff and inflation shock. Taking advantage of the economies of the scale, innovating the supply chains and maintaining strong lines of communication, the franchise can give a competitive advantage to the franchise that is often decreased in independent operators.
To find out how the franchisees are adopting and protecting the lower lines of the owners in these disturbed economic time, entrepreneur Talked with 20-year-old industry veteran Nick Pavils, the Chief Development Officer of the mainland, the communication and material marketing agency in Chicago focused on franchiseing and multi-place businesses. He explains why franchising is naturally flexible, which are to cut smart franchise costs and where the model still needs to improve.
Reactions have been edited for length and clarity.
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