Food-Related Brands Bear the Brunt of Inflation and Labor Challenges
The International Franchise Association’s 2023 Franchisee Survey highlights the ways inflation has hurt franchisees’ bottom line and how labor shortages continue to be a problem. The report was prepared in partnership with FRANdata, an independent research and advisory firm with a focus on franchising. To compile the report, FRANdata surveyed 1,297 respondents across 22 industries.
Together they own 6,639 franchise businesses units nationwide. Approximately 135 brands are represented in the survey. The industries most represented in the survey are maintenance services (22%), health & fitness (19%) and beauty-related brands (11%). Fifty-five percent of franchisees surveyed are single-unit owners, and 45% are multi-unit owners. Twenty-seven percent of the business units are in Texas, Florida and California.
Impact of Inflation
The surveyed franchisees overwhelmingly (86%) reported that they felt the sting of inflationary pressures this year. This represented a modest decline from the 2022 survey, when the number was 90%. Food-related industries were hit the hardest, according to the survey. Nine out of 10 business units increased their prices to fight inflation; 64% said revenues had declined anyway.
The surveyed franchisees were generally pessimistic about an economic rebound on prices, with 51% saying they expect inflation will get worse in 2024; 34% predicted it will stay the same. To round out the total: 9% of respondents said they were uncertain, and 6% expressed optimism that inflation would decline.
The No. 1 Challenge
Labor remains the biggest operational challenge – both recruiting and retaining workers. This was the key problem identified by 47% of the surveyed franchisees. Managing costs and inflation was the second ranking issue, with 21% citing it. Slowdown in customer demand came in third at 12%.
The top inflationary areas that were cited in the survey:
- Increases in labor-related expenses (68%).
- Elevated insurance costs (47%).
- Rising prices for inventory, supplies and materials (45%).
- Fuel (38%).
- Interest rates on loans (34%).
How Franchisees Cope
Franchisees said their single best tool – 76% of the surveyed franchisees agreed on this – for dealing with inflation was that fellow franchisees within their brands generously shared best practices for troubleshooting. Customer marketing came in second at 74%.
Corporate support and the franchise business model itself also helped franchisees in various ways this year, the survey respondents said. Information sharing across franchise systems helped 64% make well- informed decisions that boosted their operations. Improved advertising increased demand for their goods and services, 41% said. Employee recruitment was a boost for 34%, and employee retention assistance was cited by 21%. Twenty-eight percent appreciated receiving corporate aid to deal with supply chain disruptions. And 16% said they received help when their franchisor’s allowed increased flexibility in sourcing. You can find the complete report here.