So what are current trends telling us about the impact of a recession on franchising in the months ahead? And what are your thoughts?
FranConnect's franchise sales data for the third quarter of 2022 as compared to the 2021 timeframe supports that we are entering a similar cycle as we encountered during the great recession with a marked decline in leads and sales. Throughout 2021 we ended up seeing a decline in leads by -22% but saw franchise sales actually increase by +12% YOY. The bottom line - less tire kickers but more qualified buyers.
But as you can see in the following data, fear, doubt and uncertainty are momentarily creeping in and deals are being pushed back (though not lost in my opinion). People are waiting on the sidelines to see what shakes out in terms of the potential for a recession comprised of labor shortages, and impacted by war and a seemingly never-ending health-crisis that is likely to raise its ugly head again through the fall and winter months ahead.
According to FranConnect's latest franchise sales index data, the current outlook is showing some reason for concern:
•Q3 2021 Total Leads: 314,430
•Q3 2022 Total Leads: 195,213
•YOY Change (Q3): -119,217 (-37.92%)
•Q3 2021 Closed Deals: 3,265
•Q3 2022 Closed Deals: 2,053
•YOY Change (Q3): -1,212 (-37.12%)
On the other hand, Franchisors appear to be more bullish in regards to franchise systemwide sales in the year ahead as you can see here:
- 33% of Franchisors anticipate a sales increase by 1-5% in 2023
- 30% of franchisors anticipate sales being up 6-10% in 2023
- 20% anticipate their franchisees revenues will increase by 11%
- Only 6% in total believe that they will be negative between 1-5%
- And 6% believe that they will be negative between 6-10%
The smart money is on a brief recession over 2 quarters to occur during 2023 and we'll be stronger than ever. That said, there is no such thing as a rich economist! What are you currently experiencing and what are your predictions on the impact of a recession?
Written by: Keith Gerson, CFE, President of Franchise Operations, FranConnect