IFA 2017 Convention Recap: Optimistic Prospects for Franchising Sector Despite Lingering Uncertainty

Earlier this month, my colleagues and I had the opportunity to attend the International Franchising Association’s (IFA) 2017 Convention in Las Vegas. It was an exciting week of networking and presentations, and we came away from the event with a number of compelling insights into what’s ahead for the franchising space. Highlights include:

Despite Uncertainty, International Expansion Remains Attractive

Overall, U.S. restaurant brands—particularly those in the food and beverage sector—continue to expand abroad. Current hotspots include the Middle East (specifically, the Gulf Cooperation Council Countries: Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the UAE) and Southeast Asia, in addition to renewed interest in Europe. The Trump administration’s views on globalization, tariffs, immigration and international treaties, however, have caused some uncertainty among U.S. franchisors about the long-term effect on their growth potential. Moreover, staff reductions in the Commercial Service Bureaus around the world have decreased the resources available for U.S. brands seeking to expand overseas. U.S. franchise systems will look towards their international tax advisors to keep them abreast of changing government regulations and their impact on the potential for global expansion.

The Regulatory Environment & Education Remains Ambiguous

Over the past year, the IFA had been preparing for the potential outcomes of a Clinton presidency—possibly more legislation related to joint employer liability, higher minimum wages and increased support for labor unions. The Trump administration, however, has forced the industry to re-evaluate the regulatory and legislative landscape ahead. It is unclear what may be on the agenda for the franchising sector, particularly at the state level. In addition, outgoing IFA Chairman Aziz Hashim stated that the biggest problem franchising faces in the United States is a lack of understanding among consumers (and, even worse in his mind, workers at franchised units) in the fundamentals of the franchise model. The IFA has helped developed tools for franchisors, franchisees and suppliers to use to help educate the public. 

Private Equity Continues to Eye Franchising Industry

Private equity (PE) funds are flowing into the franchising sector, offering potential benefits to both franchisors and franchisees, but making it increasingly critical that all parties make sure they are finding the right partner. Key to a fruitful relationship includes ensuring the PE sponsor is experienced in the industry. After all, high multiples and large dollars can be enticing, but if the sponsor doesn’t understand your business, your growth prospects may be stymied. At the franchisee level, it is nice to have a financial partner that allows you to focus on the growth and running of the business without the pressures of fundraising. In addition, a knowledgeable PE firm will bring fresh perspective to the business and help franchisors and franchisees identify opportunities for growth and enhanced efficiency.

As with the broader restaurant industry, the franchising space is facing some economic and political headwinds. However, this year’s IFA convention suggests that the sector is pursuing an upward trajectory, and opportunities for growth lie ahead for savvy, nimble franchisors who are able to navigate the uncertainty.

For more, contact Dana Zukofsky at dzukofsky@bdo.com, or Jeff Kolton, Principal at Franchise Market Ventures, LLC, at jeffreykolton@fmvllc.net

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