Many franchise brands elected not to undertake scheduled refurbishments whilst materially impacted by Covid-19. This was of course for a number of very valid reasons including , financial, safety and logistics. However, this deferment has created a backlog, with more stores than usual needing to refurbish at a time when trades and materials are hard to come by (and more expensive than ever).

In this article we explore some of the reasons why franchisees may be reluctant to commit to an upgrade and what franchisors can do to help their franchisee partners realise the benefits a fresh look can bring.

Why do some franchisees continue to put off refurbishments?

In every franchise network you will likely get highly motivated ‘early adopter’ franchisees, eager to drive the brand and business forward. Naturally, you’ll also get some franchisees that are at the other end of the spectrum, heavily focussed on their day-to-day challenges and in need of a guiding hand to help them see the value of reinvesting capital.

When engaging with franchisees that are reluctant to undertake a refurbishment, they will often have some very valid reasons to want to defer, for example:

1. They simply don’t have the money right now.
2. They don’t see the value or upside from a refurbishment.
3. They don’t want to close the door to trade and deal with the disruption to  their business.

The good news is that these three main impediments can often easily be overcome:

• Access to Capital – It is very common that franchisees haven’t budgeted for refurbishments or the cost may be more than they have set aside, they may also be reluctant to approach their bank for fear of ‘poking the bear’. A specialist franchise lender understands the value of a quality fitout and can  often present a streamlined approval process for franchisees, particularly if you’ve already briefed the financier on your plans.
• Return on Investment – Work through your key metrics and compare franchisee data before and after a refurb (such as gross sales, customer count, average ticket value, NPS or any other relevant metric).  Case studies with quotes from other franchisees can also be a powerful tool as they are hearing it from a fellow franchisee rather than just from Head Office.
• Timing – Minimising disruption to trade and number of days required to close can be a big consideration for some franchisees. Talk to the franchisee and shopfitter to find the best solution. Refurbishment works should ideally be scheduled for quieter trading periods and some works may be able to be completed at night allowing the store to trade in some capacity during the day. Whilst this can increase costs, it’s often more than offset by the ability to continue to generate revenue

What else can you do to help get your Franchisees invested in a refurbishment?

Here’s some strategies can help get franchisees on the refurbishment train:

Start talking about refurbishments well before they’re due. Everybody needs time to come on the journey, and franchisees (and their teams) can all share in the excitement of what a bright and vibrant store might look like. Planning time can also help for budgeting, and protecting trade with clear customer communications.

Provide genuine support. Some franchisees are going to need more handholding than others. You can leverage your networks and expertise from across the network, such as by recommending preferred shopfitters, benchmarking pricing, or acting as a sounding board when dealing with challenges. Make sure they know that you’re a partner in the process and that you’re on the journey with them.

Look for ways to reduce costs – Building material costs and labour shortages in the construction industry are genuine issues. The factors driving these increased costs are not going away any time soon, so franchisors may need to revisit fitout standards and look for creative ways to keep fitout costs under control.

Help secure good contractors – Use your brand power to attract good reliable shopfitters/ trades. The prospect of future repeat business should be an incentive for them to remain competitive with pricing and delivering on-time quality work. 

Leverage modular components – Although store footprints are going to vary there may be parts of the fitout that could be modular (such as counters, kiosk stands, or work stations). These components can often be fabricated in bulk (either locally or offshore) resulting in significant cost and time savings.

Consider fixed price contracts – Fixed price contracts may be preferable for the certainty they provide, however the ever increasing cost of materials can make many shopfitters reluctant to lock in a final number. You might consider a middle ground approach, with fixed pricing for labour costs and project management but with a cost-plus-margin approach for materials.

Remember, you’ll typically have access to a far broader range of resources and information than your individual franchisees. You can (and should) leverage those resources to benefit both parties.

Finally, a word of caution. We’ve all seen the wave of insolvencies in the construction industry. When starved for cash some builders may be tempted to use money from one job to pay for another. Whilst perhaps understandable, this isn’t ethical, and you don’t want to be the one caught out . Be wary of builders requesting all or most of the project cost upfront and instead seek structured payments at predetermined milestones of the project as a way of mitigating potential risks. If a financier is involved, talk to them about how you can accommodate (and minimise costs) for these staged payments.

No business is entirely immune to the effects of a recession. However, there is evidence that suggests franchises are more recession-resistant than independent businesses.

To prepare for the possibility, it is essential to understand the areas of the economy that feel the effects of a recession first…

The most vulnerable industries are those that are more discretionary in nature, such as luxury goods, travel, entertainment, and hospitality. When consumers are feeling the pinch of an economic downturn, they tend to cut back on non-essential items and services. As a result, these industries feel the effects of a recession more acutely than others.

Another industry that is affected early in a recession is construction. We are already seeing a great deal of pain in the construction sector brought about by skyrocketing costs of materials and labour. During times of economic uncertainty, businesses and consumers tend to reduce spending, leading to a slowdown in construction activity. This can have a knock-on effect on other industries that rely on the construction industry for work.

Many franchise systems operate in industries that are considered essential, such as food, healthcare, and home services. These industries are less susceptible to economic downturns as consumers continue to require their products or services regardless of the economic climate. This can help insulate franchise systems from the effects of a recession.

However, just because a franchise system operates under an established brand and is part of a larger organisation does not mean that it is entirely recession-proof. Franchisees still need to manage their businesses effectively and take steps to mitigate the impact of a recession.

Here are some strategies that franchises can use to prepare for a recession:

• Firstly, it’s crucial to have a robust financial plan in place. Businesses should have a clear understanding of their cash flow, expenses, and revenue streams. A business that is well-capitalised and has a cash reserve will be in a better position to weather a recession than one that is heavily reliant on debt.
• Secondly, franchisors could consider diversifying their revenue streams, as many did through COVID. Relying on a single product or service can be risky during times of economic uncertainty. By diversifying their revenue streams, franchises can spread their risk and reduce their exposure to the effects of a recession.
• Thirdly, businesses should focus on their core competencies. During a recession, it’s essential to concentrate on what a business does best. By focusing on their strengths, franchisees can maintain their competitive advantage and weather the storm.
• Fourthly, businesses should keep a close eye on their expenses. During times of economic uncertainty, businesses should review their expenses and identify areas where they can cut costs without compromising on quality. This could involve renegotiating contracts with suppliers or reducing non-essential expenses such as travel and entertainment.
• Finally, businesses should do what they can to invest in their people. During a recession, employees can become anxious about their job security. By investing in employee training and development, businesses can demonstrate their commitment to their workforce and improve employee morale.

While no franchise system is entirely immune to the effects of a recession, the franchise model can provide some advantages that can help franchisees navigate economic downturns successfully. 

By having a financial plan in place, diversifying revenue streams, focusing on core competencies, keeping a close eye on expenses, and investing in their workforce, franchisors and their franchisees can improve their ability to weather a downturn and come out the other side positioned for growth. And of course, if we avoid a recession, all of these things can help make your franchise business even better!