In early 2020 the uncertainty of the new and mysterious COVID-19 gripped large and small businesses alike. Scooter’s Coffee was like every company, taking steps in the moment to keep people safe and from worrying over what the future held.
The Bellevue-born franchise coffee chain didn’t have to wait very long. Deemed an essential business, the company’s locations kept brewing and within 90 days the phone started ringing off the hook.
“We did see a dip in interest in March and April of 2020,” said Kelly Crummer, senior director of franchise development. “Then as we started to hit later in the spring, people took a look around and saw what stayed open the last two months. We got more calls every month since May of 2020 than we had the previous month.”
The momentum has hardly taken a breath since. As of February 2022, Scooter’s topped the 400 franchisee mark, each store employing between 15 and 30 employees, depending on the location. In-process commitments will expand the company’s presence to 30 states.
Crummer said several factors have contributed to the company’s brisk franchising pace.
Drive-thru service had long been a function of customer convenience, but that built-in feature also paid off during pandemic restrictions on dining rooms and in-person ordering.
“I think the best way to put it is, we were set up for social distancing before we knew that we needed to be set up for social distancing,” she said. “We put some other things in place to protect our employees and our customers at the initial height of the pandemic and continue to practice those protocols.
“It’s not a term we use, but a lot of our prospects and new franchisees have told us they sought us out because we are not only recession-resistant but also, and again this is their term not ours, pandemic-proof.”
A National Movement
Scooter’s is riding a wave of franchise interest in general that’s only beginning to pick up strength nationally. AppsThatDeliver.com reported this month that more than 3,000 franchises operate over 750,000 active outlets in the U.S., representing 300 different industries. The site also reports the franchise industry accounts for roughly 50% of all retail sales in the U.S.
And as people continue to lose or leave positions in the corporate world – 69 million employees in total last year, per the Bureau of Labor Statistics, 47 million of whom left voluntarily – franchisers are bullish on the potential for big growth in outlets in the year ahead.
Crummer said it’s a scenario the industry has seen before, only today it’s on steroids.
“The interest in franchising is inverse to the health of our economy as a whole,” she said.
“In 2008, 2009, when everybody felt like the sky was falling, interest in franchising rose because when people get laid off from their jobs in corporate America, or there are shifts in culture in corporate America, people tend to cast a wide net to look for opportunities to take control of their own destiny.”
Blake Martin, president and franchise specialist with FranNet of The Heartland agreed, saying the past two years have aligned perfectly for anyone who was even remotely thinking about owning their own business.
“Many of those who felt insecure and unable to control their professional future have looked to the stability and predictability of franchising in order to take more control over their future through business ownership,” he said.
“Those who we now refer to as participants in The Great Resignation are frequently in search of opportunities to work for themselves, and the systems and processes built into franchises often enable these ‘corporate refugees’ to fast-forward their ability to initiate working for themselves.
“And frankly, sitting at home, people had more time to research such opportunities while the historically-low interest rates have offered a greater level of comfort to those who want to finance a new small business franchise.”
The pandemic is also being viewed by many would-be franchise owners as a litmus test for business segments in general and companies in particular. Being able to watch in real time which ones survived or even thrived during a time of unprecedented challenge has become a major selling point.
“With the pandemic, there has been a trend for businesses to evaluate what is essential to their business to stay profitable in the new service delivery economy,” said Greg Schreiber, attorney with Abrahams Kaslow & Cassman. “Businesses have had to adapt to be able to deliver their products and services directly to consumers through curbside service, drive-thru or at-home delivery.
“Restaurant chains, for example, adapted their business by opening ghost kitchens where they offer a slimmed-down menu to customers that is only for delivery, doing away with brick-and-mortar locations. The rise of ghost kitchens has allowed restaurant chains to remain nimble and cut down on overhead expenses.”
Adaptability is one reason why, even as the restaurant industry itself took several hits in 2020, food franchises are selling fast, especially quick-service locations that performed nearly on par with corporate locations of the same brand.
According to QSR Magazine, the number of quick-serve company-owned locations among the top 1,500 brands declined by 1.2% in 2020 while franchise locations declined by 2.4%, or around 4,400 units.
However, take out restaurant Subway, which accounted for nearly 40% of those closures, and franchise units declined by only 1.7%. Having stabilized itself, the quick-service industry overall bounced back well in 2021, up 4.1% according to the International Franchise Association.
As that story repeats itself throughout other industries – namely firms related to health care, education and retail, per RS Web Solutions – people are jumping at the opportunity.
The New York Times reported Americans filed paperwork on 4.3 million businesses last year, a 24% increase from the year before, arresting a steady decline in entrepreneurship.
“Overall, it’s a good time to franchise,” Martin said. “Franchising has responded well to making their research process far more virtual-friendly, so ease of access to information has improved. Interest rates remain historically low and will remain at a historically low level even if and after the Fed hikes rates multiple times. Thus, those looking to borrow for a franchise are in a favorable position.
“Furthermore, lenders are more interested in funding proven franchise concepts than ever before, given their own COVID concerns. That said, understanding the right franchise industries to explore is imperative, as there have been winners and losers through the pandemic.”
The Right Match
Aligning with the right franchise is as much of an art as a science and a big part of entrepreneurial success is understanding the difference between a solid opportunity and a passing fad.
“About five years ago, we were really at a time when beauty was hot. There were facial concepts. The blow-dry bars were just going crazy. Beauty was a hot industry,” said Zach Beutler, chief development officer and co-founder of Horsepower Brands. “You started to see it shift about four years ago into fitness and for about two years, fitness just blew up until it absolutely got stopped in its tracks by COVID.
“Now in today’s world home services are at the top. I just got back from the largest franchise broker conference in the country and our Mighty Dog Roofing was the top selling franchise brand of 2021. Who looks for a roofing concept? Typically, nobody. But COVID really gave home services a pedestal to slingshot that forward.”
Beyond the business category itself, potential franchisees should pay close attention to the franchisor company itself, scrutinizing the fine print that separates one company from another in terms of cost and ongoing support.
Culture also goes a long way; a franchisor who is just as thoroughly evaluating the franchisee to determine a good match, as well providing direct honest feedback throughout, is likely a successful operator.
“Zach and I speak openly about not being afraid to have careful conversations with people,” said Josh Skolnick, chairman and co-founder of Horsepower Brands. “We talk about our franchise development process being an awards process in a way, that we award franchise opportunities to potential buyers, we do not sell franchises.
“Some people think, ‘Why wouldn’t they just sell a franchise to anybody that wants to get in?’ We do have to have that uncomfortable conversation sometimes with people who have the capital and are willing to get into the business, but might not be the right culture fit for us. We’re constantly asking, ‘Is this somebody that we’d want to pick up the phone and take a phone call from when they’re having a bad day or they’re having an issue within their business?’”
Forming the Team
Horsepower Brands leadership developed a five-point plan for evaluating potential brands, covering areas any prospective entrepreneur should explore when considering a franchise.
Beutler said understanding those measurements – capitalization, experience, customer acquisition, technology and support – will save any entrepreneur hassle, money and time.
“My favorite quote is ‘good decisions come from experience and experience comes from bad decisions,’” he said. “Those five things in our presentation can lead someone to ask a lot of questions and expose a lot of holes in other brands. We’ve invested quite a bit of capital, time and resources into, I would say, the most sophisticated platform of support for a franchise system.”
At the same time, Skolnick said, performing due diligence shouldn’t be merely a dodge from decisive action. He advised prospective franchisees that once the data points to a good opportunity not to hesitate out of fear or expecting the timing to be perfect.
“There’s always going to be a level of fear that people will have,” he said. “We get asked all the time, ‘Is now the right time to get into business?’ Zach and I always tell people, there’s never a right time, you just make that decision and go with it.”
Another thing that trips up potential entrepreneurs is failure to assemble a team of professionals, such as an experienced attorney or accountant, to help navigate the challenges of owning and running a business over and above the support received from the franchisor.
“Franchise attorneys are essential when evaluating the risks and benefits of purchasing a franchise,” said Greg Schreiber. “A franchise attorney is going to be able to offer insights to a franchise agreement and related documents that a general transactional attorney cannot provide. I often advise potential franchisees on items in the franchise agreement that may be negotiable with the franchisor, such as territory, training requirements and deadlines leading up to the opening of a new franchise.
“Potential franchisees should also consider speaking with a franchise consultant who can evaluate their skillset to provide a narrow selection of franchises best suited for them. And, potential franchisees should also consult an accountant for additional insight into the franchise’s business performance.”
Finally, when selecting a team of professionals, make sure you align yourself with someone who will advise you honestly as to your strengths and weaknesses. Direct feedback is the best way to avoid getting into a bad match with a franchise that once entered can be emotionally and financially devastating to get out of.
“You must be comfortable being a part of an organization where the whole is greater than the sum of its parts,” Martin said. “Collaboration between franchisees and franchisors is essential to success, so this process is not for anyone who wants to make every decision without input from others.
“Someone researching franchises must be willing to make time over a months-long process of learning and due diligence. Don’t choose a franchise because you like their product or service personally, choose a franchise because you like the business model yourself, and because you know that you can be successful in the role that the franchise owner must play in order to achieve success.”