Franchisee Satisfaction Indicators Suggest Contraction in Franchising

We believe that it may be possible to predict, or change, future events by understanding franchisee satisfaction and its impact.  This is contrary to the more typical utilization of franchisee satisfaction as a current or historical indicator.  To aid in this, we have incorporated what we feel are leading indicators into our National Franchisee Survey and our satisfaction index.  Through this index, we hope to be able to identify those franchises primed for growth.

Future success for most franchisors is dependent on the renewal of existing franchises and the sale of  new franchises.  Current franchisees play an important role in this process.  In addition to royalties or other payments to the franchisor, franchisees also serve as referral agents that impact on new sales.  The thoughts and intentions of current franchisees is crucial intelligence for a franchisor that can aid in building their franchise network.  The accompanying table presents three leading indicators.  All are part of the National Franchisee Survey and incorporated into the index that will be a part of our Annual Report at the end of this year.

What we see is troubling.  By a wide margin, surveyed franchisees report that they would not provide a positive referral to a prospective franchisee.  They also report that they would not have invested in their current franchise had they known what they now know.  Since overall numbers can hide crucial differences such as those between newer and older franchisees, we also look at this indicator based on years in operation.  We find similar results regardless of how long a franchisee has owned the business.  This suggests that current concerns have existed for an extended period of time.

When asked about future plans, only 15% of respondents anticipate doing the same thing in five years.  While only 14% anticipate retirement, 70% anticipate either owning a different business or being an employee for another business. 

Should these patterns persist, many franchises will encounter significant challenges in the coming years.  At the very least, a very large number of new franchisees will be needed to maintain the current infrastructure and revenues.  These new franchisees will be harder to find if current franchisees are not prepared to provide positive referrals.  Some franchisors may choose to ignore these trends and could very well see a decline in their franchise network.

More enlightened franchisors will look inward to determine if the patterns we have identified are reflected within their network.  Should these patterns be confirmed and reversed, short term benefits would likely include a reduction in costly internal litigation.  Longer term trends would include a larger and growing franchise network plus a growing dominance within their respective industries.

One of the goals of the National Franchisee Survey is to identify many of the reasons for franchisee dissatisfaction within a franchise network.  This is, as we see it, the first step to reversing negative trends within the industry.

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FranchiseFacts – Capturing the franchise experience

Perry Shoom, FranchiseFacts
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