By Jerry Wilkerson ©

Franchise executives are an optimistic lot and project that franchising will see a 6 percent growth in net new unit development during 2005.  This projection of significant system expansion is the forecast of 100 of the top U.S. franchise executives surveyed for the 14th Annual Franchise Business Development Forecast and Industry Trends Analysis.  Each year, Franchise Recruiters Ltd., an international executive search corporation with offices in the U.S. and Canada, conducts this one of a kind study and analysis of the world of franchising.

Franchise Recruiters asked franchise executives a series of questions about current business concerns and strategic initiatives they foresee in 2005. The responses review branded system forecasts and opinions for chains, nationally and internationally.  The statistics collected incorporates personal projections, calculations, and business planning data compiled through Franchise Recruiters' 27 years of professional relationships within the franchise business community. Net unit growth is the result of subtracting real unit closures from new unit sales; this figure provides the accurate, annual new unit growth for systems in 2005.  Ignoring the extremes, top management projects a consistent opinion for development and expansion within the business of franchising.  This commanding economic engine continues on an Oz- like quest up and down the Yellow Brick Road, producing sustained mutual success for franchisees along main street America and around the globe.

Franchise executives did speak of "softness" in overall revenue growth for units through 2005.  Despite solid new unit expansion, sales numbers are flat or predicted to be less than same-store sales last year (2004).  The executives, however, are still pleased with new unit construction growth figures projected for 2005.   Furthermore, they point out that the foreseeable, formidable challenges include slower overall economic retail expansion, relatively high energy prices, real estate tribulations, and rising interest rates.  Pricing, however, emerges as their greatest worry, and it is within this area that they feel the impact of competition as consumers lose the lubrication that new tax cuts and incentives brought to business in 2004.  Franchise chains will also be hit with shipping cost surcharges, outlays that will add to bottom line erosion in 2005.

The U.S. gross domestic product growth is projected to slow to 3.3 percent in 2005, well behind that of 2004, according to government statistics.  Consequently, an increase in same-store sales will be difficult to achieve for many brands.  Shoppers, regardless of income or where and how they live, demand that they not overpay for anything; consequently, price points will be particularly significant. 

Throughout 2005, the field of major brand ownership will be thinned as more national chains acquire competition.  An overcrowded market, especially in the food and hotel venues, means brutal competition to win consumers.  Franchisors articulate that they intend to save substantially through improved merchandising and non-merchandising purchasing scale, a more efficient supply chain, and more effective administrative and operational systems.  This commitment to savings will force suppliers to yield to franchisors' buying power, lest they go elsewhere. 

Retail franchisors are selling products at the counter that, in the past, may have seemed out of place as they stretch to catch consumers at the point of sales with their wallets open.  We are told a number of chains will no longer stick to just staples when it comes to selling "stuff."  Almost anything goes to please the customer as merchandisers blur the lines of retailing to squeeze out more sales.