For this next installment, we’re branching out into the world of franchise industry suppliers. There are so many worthy mentions within our space of colleagues and friendly competitors, we wanted to help shed light on the folks driving business intelligence of the industry.
FRANdata, the advisory firm that closely tracks the franchise industry across the country, has spent the last thirty years developing and renewing a knowledge base that offers unique perspectives and insights. Forbes recently commissioned them to apply their trademark methodology that ranks franchise brands on health and appeal, which you can read about here.
In the meantime, we sat down with Meme Moy and Marla Ray from FRANdata to learn about the way their team thinks about business growth.
FRANdata has been a key industry researcher for a long time now. Can you give me the backstory on how your firm came to be?
It’s been more than thirty years! We started off as a data collecting company, putting together resources that are now more commonly known as Franchise Disclosure Documents. A natural element of that process became analyzing the documents themselves. And once our current CEO bought the company about fifteen years ago, we branched out into both consulting and franchise performance scoring for lenders. Now we’re focused on research and consulting, supporting leaders, suppliers, vendors, and of course, franchisors, nationwide.
The franchising industry is all about implementing things that are proven to work. In general, how do you think data is playing a more central role in the day to day lives of franchisors, and also franchisees?
Franchising has changed so dramatically over the last thirty years, even the last five to ten years. Candidates are different now. Their needs evolve based on economic trends. In the last couple of years, as one example, we have observed scores of professionals wanting to own their own businesses rather than be employees.
But that all came to a halt with the pandemic. The data show people are realizing that they don’t have as much control of their professional future as they originally thought. Which explains why our clients, the franchise brands, are getting lots of inquiries about business ownership. People want to make sure they’re secure regardless of what goes on in the economy.
Another data trend we’re seeing is the delta in competition today versus years ago. If you wanted to open a pizza franchise in the nineties or early two thousands, there were only a handful of competitors to choose from. Now there are hundreds of pizza places. That has an impact on the franchise search.
The breadth of industries that franchising covers is also growing, while franchising is mostly known for their food brands, what people are usually surprised to find out is that food franchises only comprise 39% of all the sectors that franchise. Non food franchises comprise more than 60% of the pie.
But more important than the data itself is the insight behind it. That’s the higher thinking our clients come to us to learn. The market is more sophisticated now, and they want to understand not only the implications within their industry and the economy as a whole, but also want to be able to strategically plan out their future. Franchisees are more educated today and do significant research before even sitting down with a franchisor. They’re gathering information about the brand and being more strategic in terms of their preparation.
For example, we are seeing that some multi-unit owners are branching out to buy different kinds of offerings more than before. These multi-unit owners look at location specific factors that would complement each other in out-of-the-box ways. For instance, a franchisee who owns a music school brand also owns a lash franchise in the same location. Strategically, both businesses work well together because moms who drop off their kids at camp were also going to get their lashes done, since the location was so conveniently close by.
Your research showed 100,000 franchise businesses have had revenue declines during the coronavirus pandemic between 25 percent and 50 percent. Can you talk about how brands are handling this?
Brands that are strong were able to pivot. Some of them came out ahead with hardly a lapse in steps, although everyone has been caught off guard to a certain extent. The data are showing essential businesses like pet supplies, technology franchises and food stores doing better than before.
One client of ours is a brand in pet retail, and they pivoted exquisitely. They obtained wraps for their store vans and began offering same day delivery for owners. Other franchises took note from their strategies and started to implement the same.
Another franchisor who owns a chicken wing shop pulled together a group of franchisors from different industries as a brain trust. They got together to share best practices and pull together during a tough time. That’s encouraging to see that sense of community within the industry.
Statistic time! Only 16 percent of U.S. franchises have more than 100 units, and a mere 4 percent have 500-plus locations. Twelve percent fall in the 100-to-500-unit range, while 11 percent have between 25 and 50 stores. Do you think those numbers will change over the next five to ten years?
In general, we believe there will be more multi-unit owners in the future. Based on the conversations we have every day with franchisors, some of them are moving towards a model where they would only sell units to people who are able to be multi-unit owners from the get-go. It’s going to depend on the franchise system and its goals, but for the most part, depending on the type of system and the services they offer, multi-unit is the goal.
But that choice also depends on the franchise organization’s culture. The Culver’s founder comes to mind, the Culver family is famous for having dinner with every franchisee after they signed on, and that is part of their hands-on culture. Franchisors like Culver’s run an owner-operator model and that directs their approach to multi-unit ownership.
Culture and approach aside, we do see that multi-unit numbers will increase, since they have been increasing consistently since we started following the growth of multi-unit ownership. Where there is significant growth in particular, are the number of multi-unit operators with 50+ units.
FRANdata has been predicting, analyzing and measuring franchise performance for three decades. How have your metrics changed over the years when evaluating how a franchise is performing?
Years ago lenders came to us saying that they needed something to evaluate brands so they could make faster lending decisions. That’s why we created FUND (stands for Franchise UNDerwriting), the franchise credit scoring system. FUND scoring uses a proprietary performance scoring model to evaluate thirteen credit risk categories of a franchise brand and is based on public information. The score, with its accompanying report, is the best predictor of the future performance of a franchise system that publicly available information can provide.
And today we have some of the largest franchise lenders actively using the FUND scoring system to help underwrite franchise loans. Thanks to FUND, lenders now have all the metrics they need to get a feel for brand performance and prospect for growth. Moreover, we can also walk a brand itself through what their score is. It’s useful for franchisors to get a marketplace mirror on how they’re doing and what areas of improvement there might be. Anytime you can use data to understand how your brand performs through the perspective of lenders means clearing lending hurdles for your franchisees or future franchisees.
Any new projects on the horizon for FRANdata?
Right now is an exciting time for us at FRANdata, we thrive on helping clients figure out how to maneuver in times of uncertainty and right now we live in uncertain times. Franchisors have been reaching out to us for ways to plan amidst current situations while anticipating economical and market change in the short term. Increasingly, they are trying to evaluate how to pivot in light of new regulations, customer expectations, and environmental challenges, while still balancing the varying support their franchisees need.
Our role in that evolving trend is to provide insight to help franchisors reevaluate their plans through a more analytical eye. As consultants, our job is to help them navigate where they’re at so they can strategize on where they want to be.
Interestingly, several of our franchisor clients have told me that while their technology updates and launches were planned for next few years, they’ve sped up the process. Some of them have already implemented that infrastructure because it was a must need during the pandemic. We’re certainly seeing more of that on the consumer end, in terms of proximity monitoring and other public health innovations.
What’s important for us is keeping track of trends like these in order to keep up with the pulse of where franchising is at and where it will be heading in the future.
*This article appeared on Franchise Help. You can read the original here.