There were many, including those in the franchise sector were very glad to see the sun set on 2022. But, as we all know, the clock striking twelve on the 31st does not miraculously change the world, and the issues of 2022 were likely to rise again on 1st January.
However, I think three themes will impact the business sector generally in 2023 and the franchising sector more so, these are; labour supply, supply chain and the most critically, the political landscape.
We ended 2022 with critical labour across almost every sector, from retail and hospitality to the well-publicised health sector. The franchise sector was no different and access to staff and pressure on wages will continue to be a major concern.
The flow-on effect for franchised businesses is considerable; there is the immediate impact on services levels, with many businesses forced to reduce hours and capacity, and the pressure on wages, pre-Christmas McDonalds Queenstown offering to pay $28 an hour made national headlines.
But there is also an unique impact on the franchise sector versus businesses generally, and that’s on it’s core business mode – growth.
Very low unemployment rates and rising wages may retain workers in employment that were considering starting or entering entrepreneurship through franchising.
Additionally, franchise growth will be that much harder and more expensive on a business unit level as new franchise businesses seek to fill employment requirements. I’m aware of specific opening that have been delayed or even shelved due to concerns and challenges of staffing.
A third, longer term and lasting impact will be on what franchise growth looks like. Franchise systems or business structures that have relatively low labour requirements will have a comparative advantage and we’re likely to see these grow.
Supply chain issues
Whilst we may have seen a peak of inflation, it’s going to remain a major concern. Coupled with ongoing supply chain issues, access and pricing for inputs will remain challenging. The franchise business model has two superpowers which can provide advantages in this area.
The first is collective size and purchasing power. Individual, relatively small business units, or franchises when combined together in a franchise system can create significant purchasing power.
Additionally, in many systems the purchasing role will be centralised on a brand level, harnessing not only size, but negotiation and supply chain knowledge.
Some franchise systems will have a second super-power, and that’s the ability to supply or provide vertically integrated supply chains. Whether this be the café chain that imports and roasts it’s own coffee or the retail chain that manufactures, imports and or provides centralised shipping and logistics to supply individual businesses.
The political landscape
Whilst we have been repetitively told that international factors are driving inflation and supply chain issues, their management and mitigation is influenced by the government.
With an election later in 2023, the impact of politics on business was always going to involve interpretation and some guess work. But with a new Labour government, we are now in an immediate cycle of change.
At the time of writing, it’s too early to identify where, but unquestionably the razor will be applied to policy and legislation in the pipeline, and the government will change course on several fronts. Where and how remains to be answered.
Labour governments are not known for their economic management skills, but Hipkins has recognised the importance of business to New Zealand. Will the government really start to re-engage with business, or is it empty rhetoric? Will business confidence lift?
He has already hinted with tinkering with the taxation system. Will this help or hinder franchise-entrepreneurship?
Will the government make changes to immigration? This may impact franchising not only by flowing onto labour supply but potentially by re-igniting immigrant franchise-entrepreneurship which has all but vanished in the past 2-3 years.
And perhaps the greatest question raised now is, will it be enough to prevent a National government taking control?