Will margin compression destroy the franchising sector?

By Sarah Stowe | 06 Apr 2017 View comments

Inside Franchise Business: is margin squeeze threatening the franchise sector?Franchisees are facing declining profitability despite complaining of longer and harder working hours.

This is according to franchise research company, Franchise Relationships Institute (FRI), which has highlighted what it sees as a concerning trend.

Greg Nathan, founder of FRI, says this is a result of margin compression, which occurs when rises in costs do not keep up with rises in prices and sales.

Much of the negative media focus on franchising is actually being driven by this trend, he says, and most franchise networks are struggling to help their franchisees maintain profit margins. 

"The big three expenses in most businesses are rent, wages and cost of goods, and these can spiral out of control if not closely monitored."

Nathan believes global online competition, complacent franchisees and franchisors, and a soft economy are also contributing to the erosion of sales and margins.

"Franchisors that turn a blind eye to poor financial performance in their networks are sowing the seeds for system wide disputation and franchisee failure," he says.

According to Nathan, it is no coincidence that franchise networks bucking this trend have instigated sophisticated systems to regularly collect, analyse and discuss key metrics with their franchisees.

"Monitoring metrics is no longer an option – it is now the basis of all successful franchise networks,"

To help franchisors understand how to use metrics to protect the viability of their franchise networks, FRI is focusing its Annual Franchise Operations Conference on the theme Making Metrics Matter. 

International experts and local franchisors will be sharing strategies and case studies on how to use metrics to protect margins, grow sales, and keep customers and franchisees engaged and happy.

"We have assembled the best and brightest experts and franchisors in one place to share their knowledge and experience, including two experts from the US," Nathan says.

The conference in Sydney on 18 May features 30 interactive panels, workshops and round tables, enabling participants to learn from each other and share their experience.

  • Find out more at www.franchiserelationships.com/conf2017