NEW: Jacqui Walker

Will the shortage of franchisees force some to re-consider the business model?

Too few, and far between

Last Thursday’s 32-year unemployment low of 4.5% is not good news for everybody. For the franchising industry, full employment is presenting a real challenge for chains wanting to grow.

They can’t recruit enough new franchisees.

I was talking to a franchising consultant last week who suggested to me that franchisors need to get creative about how they find franchisees. They need to broaden the pool from which they recruit. Otherwise they will be forced to take unsuitable people for their network.

And we all know how badly that can turn out.

He suggested three strategies: First of all they need to look at their branding and image and make sure they are beating their competitors. Second, they need to consider selling more units to existing successful franchisees. Multi-unit franchising offers the advantage that the franchisee is a known quantity.

His third suggestion is more controversial. In effect, he suggested that franchisors re-consider their business model – and consider introducing more of a hands-off investor model.

“If the market is going to keep maturing, we need to look for investor-type models, someone with the capital to purchase multiple sites and then employ managers to run outlets,” he says.

Some franchisors would find this idea sacrilegious. Anything other than “owner-operated” outlets goes against the grain. The idea is that the “man who owns the store runs the store” is central to the franchising egalitarian dream.

It’s also known as “sweat equity”. With their own capital on the line, franchisees work harder to make the business work than an employee is likely to.

But it could be that the resistance to bringing in investors and their employees is because there isn’t enough profit in these businesses for investor-franchisees to employ managers? The return on capital simply may not be good enough.

If that’s the case, maybe the business doesn’t deserve to grow? I’d be interested in your thoughts.

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