As concerns over rising interest rates and inflation mount, they’re also dampening the growth outlook among franchisors. Just over half of C-level executives, 54.4 percent, said they are confident their brand will meet its growth goals this year. That’s down from 76.9 percent in April, when executives were surveyed by financial technology company BoeFly, which helps franchisors qualify their applicants and also connects those candidates with lending options.
“I’m not surprised to see the pullback of optimism,” said Mike Rozman, BoeFly’s CEO, as he noted the survey was conducted July 7-18, just days before the Federal Reserve approved an interest rate increase of a quarter of a percentage point, pushing the federal funds rate to a range of 5.25 to 5.5 percent. “I think the franchisors aren’t troubled by the interest rates. They’re troubled that their prospects are troubled by the interest rates.”
That sentiment is backed up by the survey, as 81.8 percent of respondents said current interest rate levels have negatively impacted their brand’s growth plans, up from 71.8 percent in the spring.
BoeFly created the quarterly Franchise Growth Confidence Index to assess franchisor executive confidence related to achieving their domestic growth goals. For the second installment, BoeFly again surveyed nearly 700 franchisor chief executive, chief financial and chief development officers across several industries including automotive, education, fitness, health and beauty, home services, restaurants and retail.
Inflation is likewise chilling growth outlooks. While there was only a slight uptick, from 74.4 percent to 79.5 percent, in respondents who said the current inflation rate has negatively impacted growth plans, 86.4 percent said inflation caused their brand to increase cost estimates in Item 7 of the franchise disclosure document. That’s up from just 46.2 percent earlier this year.
“There’s some sticker shock to that new franchisee,” said Rozman. “Inflation just hasn’t gone away.”
Jennifer Durham, chief development officer at Hand & Stone Massage and Facial Spa, said the brand will open at least 50 new locations by the end of 2023, up from the 37 it opened in 2022 but less that forecasted.
“Universally, cost of construction and real estate are the biggest challenges for anyone sitting in my chair,” she said. The brand, which has 570 units, is focusing “more intently” on conversions and helping existing franchisees, who account for 78 percent of the development pipeline, mitigate construction costs.
Lead flow and interest in Hand & Stone, meanwhile, “is better than it’s ever been,” said Durham, up 20 percent from 2022.
There is optimism on the labor front. In a new survey question, 75 percent of executives said the ability to find and hire strong employees has improved.
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