There are several converging forces impacting the Canadian franchise industry landscape right now. While a strong job market has led to a decrease in interest in buying franchises, as an impending recession looms and job uncertainty comes into play, we’re expecting an uptick in interest in franchise ownership.
Here are some other things to keep in mind when navigating the Canadian franchise industry in 2023.
1. Franchisees will be better funded
In July 2022, the federal government modified the Canada Small Business Program (a 75 per cent government-guaranteed loan) to increase financing from $350,000 to $500,000. Notably, that extra $150,000 now applies to franchise fees and working capital — which it did not before.
Prospective franchisees now have a bigger pool of funding. This especially applies to service brands or categories that previously had minimal funding available. This increase, along with better availability of funding for lower-cost service-based franchises, should mean that more people will be able to afford franchise ownership in 2023 and beyond.
At the same time, increasing interest rates are expected to have a softening effect. With increased borrowing costs we expect to see a more cautious approach, reflected in a longer franchise evaluation cycle. What previously was a three to four-month research process might turn into five or six months, simply out of caution.
2. Sustainable growth trumps trend
Every year, new brands are trending in the franchising world. However, what’s hot one year might not be hot the next. That is why it is important to show sustainable growth over time. I always recommend people to go into their search for a franchise by being industry agnostic and brand agnostic.
Be open about the brands you’re looking at and look at your skills alignment than the strength of the brand. 90 per cent of our clients end up buying franchises that they don’t have previous experience in and never thought they would have bought because that’s where they could leverage their skills best to execute the business models.
3. Franchising is evolving…
There’s a term emerging called ‘platform franchising’ – this is when private equity firms or parent companies that have been very successful with brands acquire additional brands. They utilize all the same internal systems and processes, and bring that horsepower to their new brands, often acquiring younger brands and accelerating growth with great infrastructure. This is good news for franchisees because that system has been proven and tested across what can sometimes be thousands of units.
And there’s another new trend in franchising to watch – MUMBOs, or multi-unit, multi-brand operators.
Franchisees are expanding strategically into other businesses and opening more units — especially when they can do it within the same family of brands.
Key takeaways: Sectors set for franchise growth
Highly recession-resistant businesses will continue to grow in Canada in the new year. No matter what’s happening in the economy, there is always going to be a need for certain service-based industries. For example:
Senior care: not an easy sector, but these businesses have proven to be recession-resistant and will continue to be important going forward.
Supplemental education: we’ve seen a big deficiency in learning for children who went through online education over the past several years. Because of this, the tutoring and supplemental education industry is poised for some of the strongest growth that it’s ever seen.
Home improvement: growth has been steady for the last couple of years as people traveled less and spent more time at home. Now, as the trend of virtual work sticks around, people are focused on improving their home office space.
Beauty and hair care: most people need their hair cut, so there will always be a need for that. Beauty, though not a necessity, has become a strong industry as people place more emphasis on self-care.
Gary Prenevost is FranNet’s franchise consultant of southern Ontario and eastern Canada.