5 Bold 2021 Predictions for Franchising from FranConnect

With 2020 now officially behind us, we decided to pull out our trusty crystal ball and look ahead to the biggest changes that will happen in franchising in the year ahead. Below we outline our favorite predictions for 2021. We are confident in all of them, but it’s safe to say we would not have predicted them one year ago. It should be interesting to look back at them a year from now to see which ones played out. (For reference, here are our top 5 predictions for 2020.)

1) 2021 will be way more than a rebound year for franchising

A combination of “employment disillusionment” and light at the end of the economic and pandemic tunnels will tempt many to re-evaluate their career situations, and that typically is good news for franchising. We predict that in a post-Covid world, franchisors will see an increase in franchise sales of 40% or greater as compared with pre-pandemic levels as workers recognize that franchising provides greater control over one’s destiny compared with the layoffs and furloughs of 2020. This will be particularly true for industries that proved “pandemic-resistant,” like the commercial and residential services category and the QSR segment.

2) AI and machine learning will go mainstream

Specifically in the areas of franchise sales development and end-customer acquisition. We already know that AI can help to achieve significantly higher closing effectiveness without increasing ad spend or administrative expense. According to analysis from Automat, AI-driven text messages average a 54% read rate compared with email’s 16% read rate, and a 26% response rate compared with email’s 3% response rate. Early adopters have already seen great results in improving franchise sales efforts (see our case study on Floor Coverings International). But moving into 2021, more franchise leaders will become aware of how conversational AI creates a competitive advantage. Look for them to quickly make it a core element of their sales and marketing processes. Full disclosure: We launched our own conversational AI solution with Lumin.ai.

3) Franchise technology fees are on the rise

According to our FDD study of 2400+ brands in 2019, the average of monthly flat-rate technology fees was $140 per month per franchisee, usually a very small amount compared with marketing and other fees. Many franchisors have realized that this is insufficient to set them up for success in the “next normal.” We predict that these monthly fees will increase by more than 50% on average. More than half of franchisees already say that they derive the most value from the technology that franchisors provide, and 61% of franchisors are now charging tech fees. Increasing tech fees shouldn’t take a hard sell if brands use technology to create greater efficiency, reduce costs, or otherwise enable the brand to compete more effectively in the market.

4) Changes to field visits will be permanent

Remote work became the norm in 2020. The impact of the pandemic forced rapid evolutions in the technology and human acceptance of teleworking, videoconferencing, and more. And despite well-documented tradeoffs, the efficiency gains we have witnessed are making impressive contributions to the bottom line. But franchising has a specific standard operating procedure that can be drastically improved: field visits. The required travel to, from, and between visits typically turns 50% or more of a consultant’s time into “dead space.” By reducing their travel, a typical field business consultant could double or triple their interactions with franchisees. We predict that franchisors, after realizing the effectiveness of virtual field visits, will permanently restructure field visitations to expand span of control to at least 75 to 100 franchisees per franchise business consultant.

5) We will see a burst in M&A activity on the low end of the market

Recent mergers and acquisitions have mostly involved large private equity firms and large mega-brands. This has resulted in extremely high multipliers, and great pressure on operators to achieve extremely aggressive goals in pursuit of ROI. For 2021 we predict a shift toward portfolios composed of smaller micro-emerging and emerging brands. (See our Blueprint for Emerging Franchise Brand Success.) This shift will alleviate growth and profitability goals that have often been unrealistic and allow for easier territory-centric “tuck-ins,” which can avoid many challenges associated with competing acquired brands.