Is Franchising Positioned Well for What’s Coming Next?

January 30th, 2020 by Darrell Johnson

Franchising is an adaptive business model.  Find an appealing economic sector where branding can be a growth factor and you’ll likely see franchising move in.  I’m going to put a bunch of trends together here and see if anything can be connected to the future of franchising. To do that we need to look at data but also beyond data.

Let’s start with how office use is changing.  The office sector is expected to continue to weaken with absorption rates continuing to falter, driving vacancies to grow to 18.3% by year-end 2019 – their highest level since 1992. The general view is continued weak demand for office space likely will cause rents to fall by more than two percent in 2020.  There are two drivers of this trend.  On the supply side, we have a tremendous amount of capital looking to be deployed and constructing buildings is what a lot of investors know so supply keeps coming to market.  The other driver calls that outcome into question:  Office space use per renting company is dropping.  There are at least five reasons:

  • Interior design is maximizing use per employee with such concepts as benching
  • Technology takes away the need for some staff and moving to the cloud takes away interior space need
  • Co-working is much more commonplace, from hoteling within a company to shared offices across companies
  • Finally, and most importantly, we have culturally accepted and technology has enabled people can work from home with full access to information and audio/video connections

Let’s turn to retail:  The retail vacancy rate trend in the US negative, rising from about 13% in 2019 to 14% in 2020.  On the non-food side, we’ve seen the transition from independent, boutique stores to chain stores.  Now chains are receding (Forever 21 apparently isn’t, you know, forever), giving way to online stores.  Some of the retail space was supplanted with services like fitness stores. Now we’re seeing technology coming into that space with the likes of Peloton that allows being part of a community from the comfort of your living room.  Of course, much of the retail space has been absorbed by food businesses.  More recently, home delivery is the rage, opening up the possibility that the trend in retail vacancy will continue to grow as people simply choose not to go out at all.

What is underneath all this shifting?  A starting point to understand where it is going is to consider the cultural implications.  Working in an office or going to a retail store has a significant socializing element.  We’ve accepted that working from home is OK.  In fact, many businesses are competing for talent with that as a feature.  With video streaming, we can stay as connected visually as we choose to do with officemates.

I think we’re replacing many of the social benefits of ‘going out’ for consumer needs with devices in our hands connected to social media.  We’ve found the convenience of ordering online and having home delivery are good trade-offs for the socializing that in the past we could only get by going out.

Finally, and perhaps most threateningly, is the testing of the delivery service itself as the ‘brand’: Uber Eats offering a pop-up brand for, say, tacos.  Will consumers care who produces it as long as it sounds cool and the delivery service stands behind it?  That could change the foundation of franchising – brand expectations around a particular product or service.

It doesn’t take much imagination to envision a world soon where the home is the center of business, social and family.  In fact, each enables the other in some ways.  If you’re home, you can get delivery of personal goods and services that you otherwise would have to put off during work hours.  There’s a trend to consider the individual as his/her own brand.  That extends to the home as well and perhaps the two will be wrapped together in the mindset of the future.

What are the implications to franchising?  I can think of a few.  For food businesses, moving food production to less costly commercial locations away from retail locations is an obvious one.  Back in the day I financed food commissaries for multiple retail locations.  It didn’t work particularly well as people liked to see food being prepared in front of them.  That’s certainly not an issue for home delivery.

To draw people out of the home office environment, we’re beginning to see the creation of mini-social communities around 3-4 integrated retail services.  Think fitness, massage, café, sports bar.  Doesn’t this look like the multi-unit operator of the future?  Aren’t you already positioned for this?

If the home is the business is the social network, does that give rise to a platform that delivers a combination of services to that residence?  We are already seeing some of this.  It started with Angie’s List and HomeAdvisor in the residential service trades.  In franchising Neighborly is growing in that direction.  Will it stop there?  If the biggest cost is the acquisition of the residential relationship, why stop with the trades?  Instead of franchise brands each trying to get their apps on devices, will we start thinking of the user as a combination residential/business/social customer?   Does that lead to a franchise platform that pulls these services together, perhaps in groups of non-competing ways?  Or perhaps in one more unified brand way?

Archived by Category