Presented by: Darrell Johnson Date:

Transcription

1 Presented by: Darrell Johnson Date:

2 Looking Into The Crystal Ball Presented by: Darrell Johnson 2

3 Looking into the Crystal Ball How the Economy will Affect Franchising Modest 2½% GDP Growth Next 3 Years opersonal wealth rebounding oconsumer confidence rising oconsumer spending trending upward ohousing slowly coming back 3

4 Implications to Businesses Generally Getting Ahead in Slow Growth/Climb Wall-of- Worry Economy Sales growth more of a market share, not a bigger pie, game Business growth increasingly comes from M&A Profit growth emphasizes cost efficiencies 4

5 Capital Markets: Lending EXPERIENCED OPERATORS Expect: o Lenders flush with money o Aggressive on terms o Alternative sources arising START-UP/EMERGING OPERATORS Expect o Greater local lender interest o Predominately SBA lending o More equity o Higher non-sba interest rates o Tighter covenants KEY INFLUENCER: FRANCHISE SYSTEM PERFORMANCE TRANSPARENCY 5

6 Pace of New Concept Growth Rising 400 New Brands Starting to Franchise Over 600 concepts started franchising since 2011 (est) FRANdata Proprietary

7 Franchise Unit Expansion throughout Economic Downturn 295,000 Food Non-Food 275, , , , , , Sampl e Size: 2,400 brands FRANdata Proprietary

8 Today s Franchisees Sophistication Experience Units 13% Units 3% % >100 Units 6% Units 9% 2-5 Units 24% 1 unit 45% % of franchisees by # units operated Source FRANdata and Franchise Business Review FRANdata Proprietary

9 Demographics: Boomers to Millennials U.S. Demographics Baby Boomers o About 20% now over 65 o Declining discretionary spending o No more carrying the economy o Shifting away from capital assets and bigger transactions 10,000 hit Age 65 Every Day Millennials o Don t buy big ticket items o Prefer urban to suburban o Influenced and reached through technology FRANdata Proprietary

10 What Does All This Mean For Franchising Brand Level ocontinue to see 200+ new brands each year obrand distinctions of greater marketing importance otechnology investment budgets will rise even more ogrowing transfer activity as unit growth mirrors slower economy ofranchisor and system cost efficiencies emphasized FRANdata Proprietary

11 What Does All This Mean For Franchising Franchisee Level ounit growth will be at a slower pace ounit locations/design/marketing will follow millennial preferences o Unit M&A will accelerate MU concentration o MU brand diversification will accelerate FRANdata Proprietary

12 Implications for Franchising Business Model Business Model Demanding Greater Transparency o Prospects and MU operators seek more info o Legislative activity growing o Politicians/Media aren t seeing through business model fog o At the center of the fog is a language gap Guiding Principles an important step Definitions and Standards need to be less confusing to constituencies, including us Business common sense must stop deferring to regulatory requirements FRANdata Proprietary

13 Transparency will Change Franchising Global financial crisis was triggering event o Lending standards changed o Lending documentation became more rigorous Created a bifurcated access to capital o Experienced operators with good CF o Mature brands with good performance history vs o New/minimal experienced operators with weak CF o Emerging brands with little/no performance history

14 Looking Into The Crystal Ball Presented by: Barry Heller 14

15 Striving for a Litigation-Proof Franchise System Your franchise agreement is your best protection Communication with your franchisees is key Establish internal rules regarding communications with prospective franchisees and existing franchisees Train your salespeople on the laws of disclosure and, in particular, financial performance representations 15

16 Striving for a Litigation-Proof Franchise System (con t) Don t impose on franchisees what is not imposed uniformly in the system Develop record management systems to be able to defend claims later Include a mediation clause in your franchise agreements Don t select arbitration as the dispute resolution method based on myths 16

17 Looking Into The Crystal Ball Presented by: Greg Nathan 17

18 Trend # 1 Gen Ys are back but now they re doing the managing! 18

19 POSITIVES: enthusiastic, tech savvy, inclusive, adaptable NOT SO POSITIVES: leadership, relationship management, communication skills Source: Ernst & Young, 2013 Young Managers Rise in the Ranks Survey 19

20 Addressing the zee/zor gen gap 1.Valuing differences with humour 2.Sharing of technical skills 3.Mentoring in executive presence 4.Reinforcing values of patience and empathy 20

21 Trend # 2 Let s look within to grow! The rise of MUFs and MOPs 21

22 Differences In Success Attributes 22

23 Trend # 3 Hey, let s buy a franchise system! Managing a franchising culture 23

24 When Corporatizing Franchise Networks 1. Senior executives must speak franchisese 2. Beware loss of operational intelligence 3. Respect the past culture 4.Don t over-promise to get deals over the line 24

25 Looking Into The Crystal Ball Presented by: Mike Rozman 25

26 Credit Access and Development SBA rule change and how it will transform franchise finance Rethinking financing as a candidate-tofranchisee conversion tool Case study: Wayback Burgers 26

27 SBA Rule Change Gold for <$350k financing needs The new rule: For loans <$350k, lenders can approve solely on a small business credit score. No cash flow or projections are required. Why: SBA solving the void of small dollar loans About the score: FICO s SBSS o Based upon consumer credit file, business report (as available) and application data o Built on millions of loans; it works Importance to franchisors 27

28 Financing in development Historical view: Financing was about the brand o Brand needed to work with credit-worthy leads o Financing was a post-franchise-agreement issue: it was about openings New paradigm: Financing is also about the lead o When the candidate is confident about financing, they progress faster o The brand s job is to position the franchisee to become confident they ll secure financing o Analogy: Prequalified home-buyers are more likely to buy a home than a buyer without a mortgage prequal 28

29 Case Study: WaybackBurgers About Wayback Burgers: o Estimated cost: $300,000 o Number of Units: 85 o Issues bqualsto all candidates 29

30 Case Study: WaybackBurgers 30

31 Built into FranConnect 31

32 Looking Into The Crystal Ball Presented by: Amit Pamecha 32

33 Mobile Marketing Strategy? 33

34 Influence of Reviews 34

35 Integrated Marketing Becoming Commonplace 35