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WHY 2021 COULD BE A HUGE YEAR FOR RESTAURANT FRANCHISING

High unemployment, low rent and cheap financing could make it a big year for franchise sales.

Nothing fuels franchise sales quite like a recession, as unemployed workers look for their next career and frequently take a stab at buying into a restaurant or other business in the name of “being their own boss.”

But a host of factors are setting the coming year up to be one of the best in the business model’s history. Favorable real estate, strong performances in some sectors of the restaurant industry, a high number of suddenly unemployed restaurant workers and low interest rates could all drive franchise sales next year to their highest seen in ages.

“2021 will probably be the best year in franchise sales in at least a decade,” said Mark Siebert, CEO of the franchise consulting firm iFranchise Group. “Maybe in 20 to 30 years.”

But a situation like this poses risks, both for prospective operators and their franchisors. Both need to take steps to ensure they're making the right choices coming out of the pandemic.

Recession benefits

There were 16.4 million unemployed Americans in July, according to federal data, down from 23 million in April but still extraordinary. What’s more, the improvement in job growth has slowed while 1 million people file for new unemployment benefits every week.

A huge percentage of the unemployed are bound to look at franchising as their next step, especially with jobs scarce.

“It sounds terrible but the word with franchise salespeople is nothing beats a good recession,” Siebert said. “Every franchise salesperson knows that unemployment is going to drive franchise sales.”

What’s more, this particular recession has hit the restaurant industry particularly hard. The industry is still 2.6 million jobs below where it was before the pandemic hit in February. The pandemic flooded the market with a huge number of experienced prospects.

During the last recession, large numbers of unemployed workers led to considerable interest in franchising, but credit challenges meant it took a couple of years for that interest to turn into actual restaurants. Once it did, it helped fuel growth in the frozen yogurt, better burger, smoothie and other sectors.

Financing challenges are not expected this time around, though Steve Schulze, CEO of 174-unit Nekter Juice Bar, said that a backlog of Small Business Administration loan applications has led to delays in processing.

“They typically take 40 to 60 days,” Schulze said. “Now they wait 90 to 120 days.” He blamed the problem on Paycheck Protection Program loans that were run through the SBA, which led to a bottleneck.

Still, many expect that bottleneck to clear, and they expect there to be few financing challenges. What’s more, interest rates remain historically low, which should make such financing cheaper. And banks may be interested in lending to restaurants because of many chains’ performance during the pandemic.