The closure of commercial premises to alleviate the effects of COVID-19 has affected a large number of franchises of all sizes. The economic impacts have been adverse for many sectors (restaurants, hairdressers, etc.) and favorable for others. Supermarket chains for example have seen their activity strengthened due to higher customer demand for fear of shortages.
What is sure is that once the health crisis is over, the economy will slowly start to recover and various industries will experience positive growth again. In a post covid-19 world, the franchise will benefit. If we look at the numbers, the franchise system has been growing consistently year after year even after the financial crisis of 2007-2008. Franchises will have to adapt their business models to a post-covid reality but we can expect the same to happen this time.
This crisis is going to be an opportunity for many people who want to start their own business, reinvent themselves and take a radical turn in their professional lives. The franchise system is going to be one of the preferred models of business because it will allow people to safely undertake business. After all, franchisees are backed by established brands in the market who are used to overcoming different crises and dealing with adversity.
What is a franchise?
A franchise is a type of business that involves the commercialization of goods and services, in which one person (natural or legal) grants another the right to use a trade name for a specified period of time. It is a commercial and legal relationship in which a third party (the franchisee) pays an established amount of money to a business owner (the franchisor) in order to operate a business using its branding, business model and trademark.
The franchisor shares a wealth of knowledge (marketing, financing, strategy, operating, training plans, etc.) with the franchisee and provides him/her with ongoing support so that he/she can successfully operate the business according to the commercial and administrative requirements of the market. Franchises often form as part of an expansion strategy because they allow the rapid dominance of markets.
Elements of a franchise
- Franchisee: A franchisee is a legal, financially and legally independent person who signs a franchise agreement to have the right to exploit for its own benefit the marketing of products or services in a specific geographical area and under the conditions agreed with the franchisor.
- Franchisor: The franchisor is the holder of the franchise right to a business idea. He/she coordinates and manages a network of franchisees to whom it provides common services (advice, marketing, product, etc.) in exchange for a royalty on sales that the franchisees advance.
- Franchise contract: This is a contract by which a franchisor, in exchange for a fee, assigns to a franchisee the right to exploit its own system of marketing products or services and the right to use its brand according to previously agreed conditions.
- Brand: The franchisor owns the property of the brand and gives the franchisee the right to its use. The use of the brand has to be made in accordance with the corporate identity and conditions.
- Know-How: Know-how refers to the skills, knowledge, processes and systems that a company has acquired and passes down to the franchisee. This element is generally what makes the difference between the failure and success of a franchise. Normally the franchisee receives an operating manual with the procedures to follow.
Reinvent or fall behind
In today’s globalized world, franchising is a very important part of the business fabric. However, this will only continue to be true if franchises reinvent themselves and adapt to the requirements of a post covid world. Here are 5 key social and economical elements that franchises should analyze and review in order to adapt their business model to the ‘’new normal’’:
- Strategy: Life as we know it has changed, which means that consumer behavior and demand will be affected. Franchises must review their business strategies or create new ones from scratch if they want to face the adverse effects of the crisis in the best possible way.
- Expansion plans: The expansion plans of your franchise should be restructured and adjusted based on your new financial projections and available resources. In the short term, you will want to be more realistic and less ambitious to give priority to key markets in which there is more potential for growth.
- Contractual aspects: It’s crucial to take into account all the possible new incidents that could put your current contracts in a vulnerable situation. You should review your contracts and adapt them to the new circumstances.
- Economic scenarios: There is no telling what the future holds. It’s important to analyze different possible economic scenarios in order to prepare for different financial projections. You must be prepared for the worst-case scenario. Businesses will have to prepare contingency plans that take into account availability of resources, health regulations, personnel, etc.
- Adaptation protocols: Taking measures in establishments open to the public is necessary and must be assumed by each franchisee.
In the months to come, franchises from different sectors will also have to invest in innovation, technological development and pay special attention to digital transformation.
Success factors for restaurant franchises in a post covid-19 world
1. Smaller spaces
Smaller restaurants are cozier and usually have better ambience, which tends to make customers and staff happier. They are easier to manage and generally require less startup capital and staff members and help reduce costs related to rent, maintenance and utilities.
2. Minimum staff
This is linked with the previous point. Franchises should seek to reduce staff in order to optimize labor costs. They should focus on giving ongoing training to their team members to maintain and improve the quality of their service and provide good conditions and salaries to their staff to reduce employee turnover.
3. Technology
The health crisis has highlighted the importance of digital transformation, especially in the restaurant industry. Due to the social distancing measures and the temporary closing of fast food chains and restaurants, restaurant owners have had to open up online sales channels and restructure their business model to give more importance to takeout and delivery. In a post-pandemic world, we expect the growth of food delivery to keep rising so small businesses and restaurant franchises should give special attention to online ordering, integrated delivery and curbside pickup.
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Delivery
Now more than ever, food delivery is a form of subsistence for many restaurants. In many countries, governments forced the closure of restaurants for the public, but allowed the provision of food delivery either through third-party delivery platforms or through their own means. This made it possible for some independent restaurants to reinvent themselves and has shed light on new customer habits.
Customers of the post covid-19 pandemic will be looking for flexibility and convenience so franchises will have to provide quality delivery service and double their efforts when it comes to branding and packaging.
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Curbside pickup
Franchises should consider offering curbside pickup, which allows customers to pick up their orders at a restaurant instead of having it delivered at home. Customers just have to wait inside their cars for staff members to come place their orders in their trunks.
4. Bet on what is healthy and sustainable
Trends in the restoration industry are slowly shifting and betting for healthier and more sustainable solutions. Customers are becoming more health conscious and looking for locally sourced products that reduce environmental effects. Businesses that adapt to these trends will benefit in the long term.
5. Marketing and social media
Social networks make it possible for businesses to establish a more direct relationship with the consumer. Creating unique content is essential for restaurant chains in order to increase sales and online visibility. This factor is key for the restaurant business as word of mouth is one of the most powerful influencers in the consumer’s decision-making process. During and after the coronavirus pandemic, restaurants will have to double their marketing efforts in order to widen their customer base and increase loyalty to their brand.
6. Design
The client has to live a unique experience every time he visits your premises. Design and decoration are essential to transmit the values and personality of your brand and differentiate yourself from competitors.
