When living through uncertain economic times, everyone needs to do their best to make informed decisions based on the limited information they have available. But, this is especially important for prospective franchisees. Buying a franchise is a long-term investment, and if people can’t afford to buy what you have to sell, no amount of money or time will be enough to save your business. As a franchisee lawyer with well over 30 years of experience, this is a fact that Jeffrey M. Goldstein knows all too well.
With this in mind, what are the “best” franchises to buy in times of economic uncertainty?
A recent article on Franchise Direct examines this question. In the article, the author identifies two industries in particular that are arguably well-positioned to both withstand economic turmoil and benefit from economic prosperity—based on data from the International Franchise Association’s (IFA) 2024 Franchising Economic Outlook. Without endorsing these (or any other) opinions, here is a look at what Franchise Direct and the IFA have to say about industries that may have the resilience needed to support sustainable franchise operations regardless of current economic conditions:
Data Suggest Personal Services and Quick-Service Restaurants (QSR) Are Among the Most Resilient Franchise Industries
It is worth noting that, as its name suggests, the IFA’s 2024 Franchising Economic Outlook provided a forecast for the past year. As we don’t yet have the IFA’s end-of-year figures, we can’t say how accurate these forecasts were. But, the general principles underlying the IFA’s forecasts and Franchise Direct’s picks for resilient franchise industries should—at least theoretically—hold regardless of how 2024 plays out. With this in mind, the industries picked as being among the most economically resilient are:
1. Personal Services
Franchise Direct defines personal services franchises as those “offering beauty, health, fitness, education, childcare, pets, travel, and other non-essential services.” According to the publication, these franchises are economically resilient due to the “lipstick effect.” As the author of the article explains:
“[W]hen the economy becomes uncertain, more people will increase their spending on affordable luxury goods, like lipstick, during the downturn. That’s because people still want to invest in things that help them hold on to a sense of normalcy and simplicity . . . [and] boost[] their mood and morale during otherwise bleak times.”
While this may be true to an extent, this only goes so far—and, as the recent spike in inflation has shown, there is a point at which people will stop spending on non-essential products and services. With this in mind, other (non-luxury) personal services may be more apropos to this discussion. For example, parents who work may have little choice but to pay for childcare, and most people will continue to pay for necessities like haircuts—though they may look for more pocketbook-friendly options.
2. Quick Service Restaurants (QSR)
Franchise Direct’s explanation for identifying the quick service restaurant (QSR) industry as economically resilient is similar: “Having a QSR to turn to for relief from meal preparation can bridge that gap . . . without the high cost” of a sit-down restaurant meal. At the same time, however, even brands like McDonald’s have been forced to rethink their pricing strategies as customers have found themselves unable to comfortably afford the meals they’ve become accustomed to purchasing for much less in the past. But, if QSRs can keep their prices in check, the IFA’s data show that this segment of the franchise industry, as a whole, has maintained its resiliency over the past several years.
Other Industries Generally Considered to Be Economically Resilient
A variety of other segments of the franchise industry have proven to be relatively resistant to economic downturns in recent years as well. With the huge caveat that every franchise system (and every individual franchise) is unique and success is never guaranteed, some examples of industry segments that have historically been economically resilient include:
- Automotive services
- Business services
- Children’s services and activities
- Healthcare
- Seasonal holiday decor
These industry segments tend to be economically resilient for one of two reasons: either (i) they involve necessary services, or (ii) they are non-necessary, which people are willing to budget even in financially challenging times. But here, too, there are limits, and prospective franchisees must critically assess the long-term viability of any concept they choose to pursue.
What Type of Franchise Should You Buy?
Given these various considerations, what type of franchise should you buy? Of course, there is no single “right” answer. Many different types of businesses can succeed in a wide range of economic circumstances, and no one can predict the future.
Making an informed decision requires careful analysis, thorough due diligence, and guidance from experts who can help you assess the financial strengths and weaknesses of individual franchise opportunities. While making an informed decision is not easy, it is extremely important. As we’ve already discussed, buying a franchise is a long-term investment, and if your franchise fails for any reason (including an economic downturn), you can lose your initial investment—and much more.
If you decide to move forward with buying a franchise, you will also want to speak with a franchisee lawyer who can help you understand the terms of your franchise agreement and negotiate any provisions that present untenable risks. While franchisors might not be willing to negotiate much, they know which provisions of their franchise agreements are particularly unfair, and most will be willing to consider reasonable concessions. Obtaining reasonable concessions before you buy a franchise is a key step for protecting yourself should your franchise struggle due to circumstances beyond your control.
Considering a Franchise Opportunity? Schedule an Appointment with Franchisee Lawyer Jeffrey M. Goldstein
If you are considering a franchise opportunity, franchisee lawyer Jeffrey M. Goldstein can help you understand the terms of your franchise agreement and negotiate on your behalf as necessary. To learn more in a free and confidential consultation, give us a call at 202-293-3947 or request an appointment online today.
