The Franchise Buyer’s Guide: Market Outlook
When we talk about “the market” there is a tendency to think we’re talking about the stock market.
The stock market is where people buy and trade ownership shares of companies (stocks). Those tickers and graphs are, in some sense, a direct reflection of a company’s success, but they aren’t exactly. To put it somewhat crudely, they are a representation of how people feel about the likelihood of a company’s future success. And if your business happens to be the one up on the screen, those tickers and graphs don’t always reflect who is (or is not) walking through your front door.
As a prospective franchisee, you are betting on the success of your franchise. To bet intelligently, you need to not only understand the ins and outs of the franchise itself, but also the market in which your franchise exchanges goods and services. It is the water into which you’re preparing to dive.
Here’s how to test those waters.
How do we measure “the market”?
There is a slight but important difference between “the market” and “the economy” in the sense people use those terms. “The economy” refers to recent or established buying patterns, while “the market” is forward looking. When we talk about “market outlook” in this guide, we are really trying to measure both.
Stock market indexes can be useful for some aspects of this. If McDonald’s stocks are soaring, that is indeed a good indication that things are going well for the company, which may bode well for you as a future franchisee. But there are a few provisos.
- The success of the greater company does not always translate to the success of your franchise.
- Historical trends tend to be much more revealing than short-term trends.
Not all franchises are publicly traded, which means you won’t be able to look at your company’s stock performance over time the way you could with McDonald’s. But you can look at other publicly traded companies that operate in your sector and try to discern the degree to which their success is a product of market forces.
But, again, these indexes do not paint the whole picture. Dig a little deeper to understand consumer trends, advancements in technology, as well as political or generational changes that may affect your business. At Buy and Sell a Business, we practice this internally every day using our S.E.T. model, where we audit Social, Economic and Technology trends. Last year, Franchise Canada Online conducted an analysis and projected several categories that will “play a major role” in franchising in Canada in years to come. They were:
- Food (including grocery and specialty shops)
- Children’s products and services
- Senior services and home care
- Home improvement, renovations, and restoration
- Health, fitness, and nutrition
“These categories reflect the changes that are taking place in a time-conscious Canadian society with an aging population,” it said in the report, which illustrated in considerable depth how various franchises have capitalized on these trends.
The niche and the downturn
The key to your success as a franchise is to offer a good product or service that nobody else is offering. To return to an earlier example, lots of places make hamburgers, no-one else makes Big Macs. All other factors in your success ultimately begin and end here.
But, having a good and unique product or service is not enough. Your product or service also has to be both unique and good enough in the context of the market in which it is operating. This is your niche. It is how you position your business to take advantage of market forces that are acting in your favour (see the case studies below for more details on how this plays out in practice).
Now, the fact remains that no matter how good or unique your product, market forces rule the day. Consider airlines, an example that would be less applicable in less extraordinary times. You may run an airline with the greatest possible value proposition, delivering a service totally unlike any of your competitors, reliably, and at a price point fairer than could be reasonably expected. But if a virus shuts down borders, or makes 60% of your target market unwilling to travel, your value proposition is moot.
The pandemic has forced us, collectively, to reexamine our ideas about what products and services are essential; that is, which ones are not subject to forces that introduce volatility in the markets. There are more of these businesses than you may expect. As Buy and Sell A Business CEO Nunzio Presta has written thoughtfully, opportunistic buyers were expecting to gobble up small businesses at a discount during the pandemic, but it turns out many are pandemic-proof.
Which businesses are those? They’re actually the same as the ones listed above. According to Entrepreneur magazine‘s Jeff Elgin, services that are usually considered necessities include things like senior or child care and restoration services. Elgin also included “haircuts” on his list, which was written in 2011—a sector that the pandemic demonstrated was not quite as resilient as many of us had previously thought.
Right now, a shift is happening in elderly care, with renewed focus on enhancing quality of life over medical interventionism. As a result, people are living happier and often longer lives at home rather than in hospital. With the Canadian population aging, that trend is going apply to more and more people.
That’s where services like Home Instead come in. A franchise based out of Nebraska with “traditional midwestern values”, Home Instead pairs caregivers with families to help the elderly live their lives out in the comfort of their own home in circumstances that would otherwise force them into another care setting.
Some say that veganism is not a mainstream movement—that whatever mainstream appeal it may have had hasn’t or won’t last. But those people have not done their homework. In the past several years, the number of Canadians who have identified as vegan has surged, and the number of people who express interest in cutting down their intake of meat has expanded even more dramatically. This trend is being driven largely by a cadre of environmentally, socially and health-conscious young people who will be consumers for years to come.
This makes Globally Local an intriguing franchise. It’s one of the first vegan fast food chains in Canada. It’s dedicated to environmental sustainability but offering tasty vegan plays on fast food favourites like the Big Mac and Whopper. Its business plan allows its target demographic (the aforementioned young people) to have their burgers and eat them too, as it were.
Disasters stop for no-one. Forces of nature like water, fire or mold have no discretion, which means that no matter when or where, people will always need professionals to come clean up the mess. That’s why companies who are able to differentiate themselves in this space are about as resilient as businesses gets.
Paul Davis is one such franchising opportunity. The certified restoration service has established stringent standards in order to ensure that its clients (i.e. people struck by disaster) meet insurance requirements which greatly enhances the value of this service. Franchisees follow a five-step protocol: triage calls to respond as quickly as possible, mitigate damage as it’s happening, restore, and get things back to normal.
BuyAndSellABusiness.com is also running a buyer’s workshop for those looking to purchase any small business—franchise or otherwise. It’s just 30 minutes long and completely free. You can register at our website.
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Opinions expressed here by Contributors are their own.