Franchise Update Magazine Issue IV, 2013

Grow Market Lead By Eddy Goldberg Mixed Bag Highlights from the 2014 AFDR T he findings from the 2014 Annual Franchise Development Report (AFDR) were unveiled this October at the 15th annual Franchise Leadership & Development Conference in Atlanta. In keeping with past years, Steve Olson, president of Franchise Update Media Group, presented the findings during the first general session of the conference. This year he was joined by Conference Chair Tom Wood, president of Floor Coverings International, and Greg Vojnovich, chief development officer at Popeyes Louisiana Kitchen for a discussion of the results. This year’s AFDR is based on responses from 101 franchisors representing 34,509 units (31,047 franchised and 3,462 company-owned). The participants were franchisors who preregistered for the conference and completed an online survey in advance. Their responses were analyzed to provide an indepth look into the recruitment and development practices, budgets, and strategies of a wide cross-section of franchisors. In sum, the data, with accompanying analysis, provide the basis of the 2014 AFDR. Growth plans for 2014 from the 101 franchisors target a total of 4,057 additional units from 2,526 franchisees. Last year, 106 franchisors aimed for 4,675 new units from 3,095 franchisees; and in 2012, 110 franchisors sought 8,262 new franchise units and 4,441 new franchisees. Overall, respondents said the top five most important factors in franchise development success were: 1) franchisee validation, 2) unit economics, 3) quality leads, 4) sales person, and 5) sales process. What follows are selected highlights from the upcoming 2014 AFDR. (Ordering information is on page 37.) • Recruitment budgets. Both average and median recruitment budgets for 2014 ($201,817 and $120,000, respectively) are down slightly from the previous year, although each is higher than in 2010 and 2011, and not significantly different from 2012 ($197,000 average, $125,000 median) and 2013 ($208,625 average, $125,000 median). This likely reflects the slow, steady post-recession shift from a focus on tightening opera- 34 Franchiseupdate Iss u e IV, 2 0 1 3 tions to a cautious crawl back toward more of an emphasis on system growth. • Where the money goes. No major changes here—which might itself be considered surprising with all the noise about social media. Overall, the distribution of development spending has remained fairly constant over the past 5-plus years. Internet spending by respondents actually peaked in 2010 at 50 percent, gradually declining to 45 percent predicted for 2014. Planned spending for 2014—print at 15 percent, trade shows at 16 percent, public relations at 12 percent, and “other” also at 12 percent—pretty much mirrors spending in previous years, with just a minor uptick for trade shows. • Top sales producers. No major changes from last year here either. The Internet—at 42 percent—continues to dominate as the top source for franchise sales, identical with last year. Referrals were second at 31 percent, down a point from 2012. Brokers, at 17 percent (up 1 point from last year); and “other” at 10 percent (up 3 percent from last year), accounted for the remainder of franchise sales in 2013. • Top Internet sales producers. As noted above, the Internet accounted for about 4 of every 10 sales. Breaking it down by category, the biggest change from last year is the increase in sales from SEO (31 percent in 2012 to 49 percent in 2013), largely at the expense of online ad portals, which fell from 43 percent in 2012 to 28 percent in 2013. Pay-per click as a sales producer has yo-yo’d in the 5 to 10 percent range over the past four years (11 percent in 2010, 5 percent in 2011, zero in 2012, and 6 percent in 2013). • Brokers. While fewer franchisors reported using brokers in the past 2 years (44 and 48 percent in in 2012 and 2013, respectively, compared with 57 and 56 percent in 2010 and 2011), the percentage who are closing deals through brokers has risen in the past 2 years, significantly so in 2013. In both 2010 and 2011, 67 percent of those using brokers closed deals through them; that figure rose to 70 percent in 2012, and jumped to 90 percent in 2013. The median broker compensation of $13,500 among this group was level with 2012, falling from $15,000 in both

Franchise Update Magazine Issue IV, 2013 | Page 36