Is recession such a bad thing for franchising?

With darkly laden clouds on the horizon, franchised businesses could be best placed to do well.

A lot of economic reports in the media lately have been talking about recession. It has long been said that if the United States’ economy sneezes, Australia’s catches a cold, and with the real likelihood of a sub-prime-inspired recession gripping the US, Australia’s own economic future is in for a bumpy ride.

For those of us who lived through the soaring interest rates and high unemployment of the early 1990s, we know what to expect. But for almost a whole generation of free-spending Australians who have grown-up, got jobs, bought houses and started families in the last 13 or so years, the concept of a recession is entirely alien.

This generation of Australians are profligate spenders, with artificial wealth based on market-driven property values that could slide backwards when recession hits, as values did particularly in Victoria in the pre-Kennett era. This generation of Australians are mortgaged to the back teeth, trapped by the romantic notion that home ownership is a right, and willing to enter loan agreements of 30 years or more to do so.

This generation of Australians has benefited from a technological explosion that has made it obligatory for every household to have at least one computer, a flat screen TV and a myriad other irresistible gadgets without which it would be impossible to live, and which have been bought on never-quite-paid-off credit cards or too-good-to-be-true interest-free deals.

This generation of Australians have been eagerly chased and poached by employers desperate to fill empty jobs. They haven’t experienced double-digit unemployment, or the tremendous relief of landing a job – any job – so long as it kept the wolf from the door.

And this generation of Australians have never experienced the painful contraction of consumer spending when the economy tanks, and every red cent is needed to keep debt under control and food on the table. This generation of Australians, perhaps naively (or not, depending on your point of view) are living for the moment and going as hard as they can.

And while the clouds of economic uncertainty – and perhaps recession – gather around, this generation of Australians is also the new breed of both independent and franchised business owner and operator.

But as troubled as the future may look overall, the prospect of a recession need not be a bad thing for franchising. Sure there will be some concepts based on highly discretionary purchasing habits that will suffer when consumer spending contracts (and a few readily come to mind), but in the main franchising will endure and prosper in poor economic times because of its greater branding and marketing effectiveness, support networks, consistency of offering, and the sheer bloody-mindedness to succeed that creates a national chain from a single store or territory.

Consequently, in tough times, franchises increasingly succeed at the expense of stand-alone small business operators, whose buying power, branding, marketing and operational expertise cannot match that of the larger chains. And, as unemployment grows, so too does the attractiveness of self-employment via franchising.

So while the clouds of economic misfortune gather in the distance, franchising in the main should be well-prepared to weather the storm, and even prosper. However, for those franchisees who are part of the generation of Australians burdened by the highest levels of household debt our country has ever known, act now to weather-proof your business or risk being washed away.

Jason Gehrke has a passion for franchising. He has been involved in the sector for 17 years as a franchisee, a franchisor, provided PR and marketing services to more than 30 leading Australian franchise systems, and presented to literally thousands of potential franchisees and franchisors over the years. He is a director of the consultancy Franchise Advisory Centre and is the immediate past CEO of automotive paint and plastic repair franchise, Kwik Fix International, a 2004 Australian Franchise System of the Year winner.

For more Franchise Tips & Trends blogs, click here.