Franchise Industry Feeling The US Economic Slowdown — Part Of a Cycle

First the good news:

Our economy runs in up and down cycles. Folks, nothing stays the same.

Now the lousy news:

We are experiencing a down-cycle in franchising…..

That is according to The Rosenberg Center Franchise 50 Index (view latest Franchise 50 Index results). Restaurant franchises seem to getting hit pretty hard, as U.S. consumers, wary of a possible recession, slow their discretionary spending down. The index has mostly food service and hospitality type franchises, and according to the latest figures, 43 franchise companies out of the 50 in the index were down in the last quarter of 2007. I am not surprised at all. The economy is in slowdown mode, and it has been for a few months, now.

Just imagine how boring it would be if all of the small businesses in the U.S. were busy and going gangbusters all of the time. Where would the challenge be in that scenario? Besides the fact that highly paid business consultants would be unemployed, where would the fun be? Everyday, cash registers would be ringing like slot machines, employees would be running around like crazy all day long, and credit card transaction fees would be to the moon! Boring!

Speaking of slot machines ringing, I remember when I lived in Las Vegas with my best friend, Phil Madow. I remember the night that I landed at McCarran International Airport. It was in March of 1984. After another highly unpleasant Cleveland winter, greeting the 50 degree Las Vegas evening was euphoric. Phil had his shiny white Olds T-Top coupe waiting for an introductory cruise on the Las Vegas Strip. With the T-tops stashed safely in the trunk, we were out cruising. What a fine life!

By August, I was quite ready for any type of change, related to weather. You see, after almost 5 months of ‘today’s forecast-sunny, with a high of 102 degrees … tonight clear and warm, with a low of 70 degrees,’ things actually did become boring. Really hot, and really boring! A cloudy day would have been a welcome sight ….

The point is this: We must have ups and downs in our economic cycle to balance things out. I am suggesting that we even need up and down economic cycles in our daily lives. It helps all of us become a little more appreciative of what we do have.

EXPECT that we will have up and down economic cycles. Smart business owners learn to operate during good times and not so good times. During down cycles, be contrarian in your business decisions by doing things like increasing your marketing budgets, energizing your sales efforts. Down cycles are also a great time to cut costs in areas that are not adding to your bottom line. Doing a couple of things that others aren’t, will position your business to take advantage of opportunities when the good times return.

The business climate in the US will once again become fertile. Take advantage of slower business times. Catch up with some old friends. Hunt out some stocks to buy, that were always a little out of reach. Take up blogging. Go to a baseball game. Enjoy these times … and slow down. (I am giving myself advice here. It can’t be all about you, you know.)


Joel Libava Joel Libava is the Franchise Expert for Small Business Trends. Joel, The Franchise King®, equips today’s prospective franchise owners with time-tested, proven techniques designed to increase odds of success. He does this through one-on-one coaching, and gobs of useful content that can be found on places like Small Business Trends, SBA.Gov, and his award-winning franchise blog, The Franchise King Blog . He’s been featured in Entrepreneur® magazine, and is frequently called upon by national media outlets and publications for his no-spin insights into the world of franchising.

19 Reactions
  1. What a refreshing take on all for this. With more traditional media hyping non-events into news, real news like this gets blown WAY outa proportion. Nice to hear some reasonable commentary for a change.

  2. I really enjoy when my business slows down after the holidays. It gives me something to look forward to each year. I know that if I bust my butt thru the holiday orders, relief is in sight. I also know to plan that Jan. & Feb. are my time to do computer work like updating my site, getting taxes ready, trying new programs and going thru inventory. I agree Joel, we all need to slow down once in a while.

  3. Thanx, Andertoons.
    The nice thing about being a blogger is that one has the ability if one chooses, to speak from the heart, tell real life stories, and provide different perspectives.
    Joel Libava

  4. Hi Joel,

    Interesting data from the Franchise 50 Index. Question for you: do you think that is a leading indicator (meaning it is an early sign and we have a long way to go) or is it more of a lagging indicator (meaning that we are on the tail end of slowdown indications)? Any thoughts on that?


  5. I ran across this article ina random search for Marketing Trends. After reading the article and the comments – I can see that I have finally found someone else that feels the same way I do! SLOW DOWN…live and enjoy life. Some great words to live by. Thanks Joel.

  6. Anita,
    I don’t want to be accused of being negative, but I do think it is going to be a long, and challenging year. Gasoline prices are going to hovering around $3.35 a gallon, I fear, and that will force consumer debt, higher still. I know that personally, my family is cutting back on our restaurant outings. Inflation is becoming a prob {just go to the grocery store}, the mortgage issue is STILL a huge issue, and we will be having a different administration in power, soon.

    On a positive note, as I wrote about in my article, this is all a part of a normal cycle. This too shall pass…
    Joel Libava

  7. Hisotorically, we’ve often seen a franchise unit growth get a lift during recessionary climates, in part driven by corporate layoffs/downsizing. The tight credit markets could present challenges for some prospective franchisees seeking financing during this cycle, however. It’ll be interesting to see how it plays out. Any thoughts?

  8. H. Stokes,
    You are absolutely correct. However this time around, I am seeing more hesitancy on the part of the candidates that I am working with. “Pulling the trigger” in the current climate is a little tougher. Couple of months, we will see folks more aggressive in their hunt, as the job market will still be tough.
    Joel Libava

  9. Martin Lindeskog

    “Boom and bust”…

    Joel: Don’t you find new types of franchising ideas during a slowdown of the economy? How about setting about instant noodle stand? 😉

  10. Hello Martin,
    I just happen to own a large chain of Noodle stands.
    But seriously, I think the reason that I seem to be drawn to simple, service types of businesses, is that they are usually pretty stable, in an up OR down economy.

    Being the skeptic I am, newer concepts really have to wow me, for me to take more than a cursory look at them.
    Thanx for throwing a comment my way.
    Joel Libava

  11. Martin Lindeskog

    Joel, Thanks for your thoughts. Talk to you soon again regarding our business idea and a potential franchise concept.

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