Fluctuations continue in confidence levels for franchisors as they consider their ability to meet franchise growth goals this year.
Just over 72 percent of the nearly 700 franchisor chief executive, chief financial and chief development officers surveyed for BoeFly’s Franchise Growth Confidence Index said they expect to achieve their domestic growth goals this year. That’s a more optimistic start than in 2024, when 67 percent of those surveyed said they expected to hit their growth targets.
“I do really think a lot of this has to do with the past the election. It was obviously a lot of anxiety leading up to the election, a lot of inflation, a lot of interest rate concerns,” said BoeFly CEO Mike Rozman. “And so now that that passed, I think you see a bump.”
Rozman added the first quarter typically reflects a “honeymoon period,” as leaders are more confident after just establishing their goals for the year.
BoeFly, a financial technology company, conducted its survey in mid-February, with respondents coming from several industries including automotive, education, fitness, health and beauty, home services, restaurants and retail.
Interest rate and inflation worries persist, however, as 75.8 percent of respondents said interest rate levels have negatively impacted their brand’s growth plans. The same percentage noted the negative impacts of inflation on their expansion efforts.
Over the course of three cuts last year, the Federal Reserve lowered interest rates by a full percentage point but has since kept them at 4.25 percent to 4.5 percent and indicated more reductions are unlikely. Inflation, meanwhile, remains above the central bank’s target.
There is positivity, said Rozman.
“Franchisors are reporting that their franchisees that are joining the system, or that have already been in the system and are growing additional units, they’ve come to be comfortable with these higher rates. It’s not preventing them from opening,” he said. “I think there’s some positivity around that. Even in the face of rates sticking around at a higher level, franchisees aren’t letting that stop their ability to grow.”
Cost estimates listed in Item 7 of the franchise disclosure document are going up, with 94 percent of those surveyed saying inflation is pushing them to increase those estimates. Rozman said franchisors should emphasize education so prospective and existing franchisees understand the impacts, and those with strong unit economics can make a compelling case for continued development.
“If you’re producing good cash flow, good four-wall unit economics, are you really going to let the current interest rate environment slow you down from growing?” he said. Smart franchisors, he continued, are articulating the opportunity cost involved for franchisees who hold off on planned unit growth.
On the labor front, close to 60 percent of respondents said the ability to find and hire strong employees has improved compared to the previous year. Just under 42 percent disagreed.
