In the hospitality sector, pricey restaurants are vulnerable. “They get hit from a reduction in patronage and increased costs.” Yet even thrifty customers don’t necessarily want to cook, so “cheap escapes” are popular, enabling takeaway food outlets, such as pizza chains, noodle bars and sushi trains to operate viably during a recession or downturn, Ritchie says.
Nick Knight, 25, who runs six Domino’s Pizza franchises in Sydney and two in regional NSW, concurs. “Pizza has comparable pricing. If a family feeds themselves at the supermarket it’s probably the same cost, if not more expensive, than it is to purchase from us. When times are tough we tend to be quite recession-redundant. We market to a broad section of the community as opposed to specific, niche markets.
“As times get tougher, often people are more pressed for time, so convenience food becomes more of an option rather than something you cut back on.”
At a time when people are job-confident, they are not completely battening down the hatches. In the past, in times of high interest rates, recessions have been accompanied by high unemployment, Ritchie points out. “But there is mood change with people also realising they can’t put things on their credit cards forever.”
Franchising, seen as a less risky way of being your own boss than starting your own business from scratch, is appealing for various reasons. Franchisees are assured of an established brand, management systems, location, support and training, and the business can be sold on. But there are also constraints. Branding, buying and decision-making on pricing and product are in the hands of the franchisor, whose business system the franchisee adopts for a fee and a percentage of sales.
“For some people, the systems and structures are fantastic,” Ritchie says. “They might be new to a business, they have an established brand, they know what they’re getting, they don’t have to market from scratch and they’re willing to pay a cost for all of that.”
While franchises have increased by 7 percent a year in the past couple of years, the Franchise Council of Australia says, they are also twice as likely to succeed after two years as small businesses. With 150 franchise systems launched nationwide in the past two years, there are almost 900 in an industry worth $80billion and turning over $128 billion annually. Steve Wright, chief executive of the Franchise Council of Australia, expects some flow-on effects from interest rate rises to consumers and business. “Historically, the downturn has not meant a closing of the shutters for franchise businesses.”
Starting a franchise over a business from scratch always has it’s benefits, like existing brand popularity. When it seems that small businesses are failing due to the economy, a franchise might be the best option. The success rate for a franchise is much higher and the customer base is more likely to stay steady even if times aren’t so great.
Image fromStock.xchng.
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