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Franchise development reckoning looms

As a result of America's economic downturn and resulting recession, many franchisors have struggled to maintain prior levels of franchise sales and new unit growth.  Larger franchisors have generally been able to cope with the change in franchise prospect activity by focusing on operational and financial efficiencies at existing units.  But smaller franchisors and others needing to grow to survive have scrambled - and in many cases struggled - to maintain their traction toward new franchise development.

In both cases, franchisors have discovered a new normal with respect to new franchise development within the current economic climate.  And what's become en vogue in today's franchise recruitment world - offering low-cost incentives and other enticing offerings to motivate prospects to close - creates questions about the long-term viability and success of such candidates.

Stories about franchisor financing and other incentives have received much buzz.  Just last week, a Reuters article highlighted some of the incentives being offered to new franchisees by large and small franchisors alike.  It is likely that additional franchisors will follow suit.  But are such strategies - and the resulting deals they create - viable?

Interestingly, many franchisor founders are quick to agree that if they were able to go back in time and "re-start" their franchise ventures, they would likely be much more careful in selecting their franchisees.  But, as is the case with many new franchisors, these new brands needed to grow...and, in some cases, needed the money to sustain themselves for the future.  So they made concessions.  They made sacrifices. And, oftentimes in the beginning, decided to award franchises to the "wrong" kind of candidates. 

Which begs the question: are today's incentives and other programs aimed at luring prospects attracting the wrong kind of candidates to franchise brands?  My guess is the opportunity is certainly increased and franchisors not keenly-focused on vetting candidates may find themselves growing with the wrong kind of new franchisee.

It will be interesting to assess the effectiveness of today's incentives in tomorrow's economic climate.  But for now, franchise executives continue to be faced with the prospect of slow growth and the challenge of overcoming current economic conditions to sustain and grow franchise brands.

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