Franchise companies, facing what many say is the toughest economic environment they’ve seen, are offering two-for-one deals, reduced fees and financing help to woo new buyers. They are also paying existing franchisees to help spread the word.
The economy has made many would-be franchisees wary of taking big financial risks, while others simply can’t get the necessary loans. Meanwhile, competition among franchisers is growing, giving investors a lot more choices. There are now about 3,000 different franchise concepts, according to the International Franchise Association.
In a survey released last week of some 150 franchise companies, respondents said their franchise sales were about 72% below their 2008 goals, with inquiries from prospective franchisees down about 48%, according to Franchise Update Media Group, San Jose, Calif.
But even as “closing deals is becoming more of a challenge,” says Harold Kestenbaum, a franchise attorney in Uniondale, N.Y., franchise companies have to be careful not to alienate existing franchisees when they offer discounts and other incentives to new buyers. “How does it look for the guys who pay the higher price when they see the price is getting lowered?” he asks. Making the situation more sensitive, existing franchisees, especially in the retail and home-service sectors, are being hit by cutbacks in consumer spending. More.