What is the biggest trend you’re watching in 2023, and how are you approaching it?
"On one hand, private equity is still very much obsessed with franchising. PE firms are acquiring franchisors at every stage of growth and in every industry, and they’re paying huge multiples. On the other hand, franchise founders are acquiring other businesses and franchising them. Once they’ve done it with their first business, they can quickly build out systems and support to launch additional franchises. There are also more niched brands emerging that differentiate themselves ... There’s going to be a lot of competition between generalists, but I think the specialized brands are going to own 2023."
—Jonathan Barber, Franchise Law
Amanda Dempsey, Saxton & Stump
"I’m keeping a close eye on the FTC’s proposed non-compete clause rule. Depending on the scope of the rule, if passed, it could eliminate non-competition covenants in franchise agreements, which franchisors rely on to protect their system standards. I have been discussing this possibility with clients actively, to ensure that we are employing additional measures to protect the intellectual property and valuable know-how that define each franchisor’s system."
—Amanda Dempsey, Saxton & Stump
"I anticipate that we will continue to see the consolidation of brands across industries as private equity and multi-brand companies scoop up single-brand franchise systems. In order to prepare clients in light of this landscape, the advice I give is, ‘start the way you want to finish.’ When establishing the infrastructure for a franchise, considering the exit strategy is key. New franchisors must understand that the steps and procedures that the brand owner is putting in place today will have a direct effect on the potential sale of the brand tomorrow."
—Cassandra Da Re, Dale & Lessmann
"The biggest trend is the emergence of franchisors seeking new and aggressive growth opportunities after almost three years of pandemic-related efforts to keep their systems together and viable. We are working very closely with our franchisor clients to help strategize and execute plans for growth."
—Allan Dick, Sotos
"With interest rates at 10 percent, franchisors are laser-focused on unit-level economics. Being focused on franchisee profitability and cash flow has never been more important."
—Ritchie Taylor, Manning Fulton
Craig Tractenberg, Fox Rothschild
"Franchise system developers who know little about the core business, convince the founder to franchise, and sell the sizzle rather than the beef. The problem is that the core business may be perfect for an industry professional, but not to the uninitiated franchisee. The developer does not realize this and the franchises are sold to the wrong folks.
We have been successful in negotiating exits for people who should not be in the business, but the franchisor gives so much away in selling commissions, that the franchisor does not have the money to make things right. Ultimately, these will be failed systems, which may disappear with a whisper rather than a bang."
—Craig Tractenberg, Fox Rothschild
"Sophisticated service brands! Those successful but not sexy home service-based brands are especially what ‘zees are leaning into this year. It’s a market shift away from the traditional fitness and food focus toward those recession-resistant brands with quick-to-break-even models that are easily scalable."
—Kit Higgs, Kit Franchise Law
"State data privacy statutes and how those regulations fit in with the franchise model and the franchise system’s use of data in all aspects of the business, particularly with order processing and marketing/advertising tactics, is critical in today’s world. Not being proactive with data collection and retention practices could lead to significant exposure for the franchisor."
—Ashley Weis, Eastman & Smith
"From a regulatory environment, monitoring how examiners are reacting to franchise questionnaires and acknowledgements. Also, working with clients to ensure their development teams are properly trained. This helps reduce the risk of improper sales practices. We are encouraging clients to do a thorough review of documents to ensure compliance which, in turn, will result in ease and speed of the FDD being registered."
—Trish MacAskill, Akerman