The Year In Franchising: Reflecting On 2021, And Anticipating 2022

Over the past two years, the world has changed in ways it never has before, and the franchise industry is no exception. It has taken a while, but following the challenges of the Covid-19 pandemic, 2022 is positioned to be a massive year for franchise development and sales growth. First, as we wrap up 2021, let’s take a look back at how the franchise industry has adapted to the ups and downs of the past year.

2021: A Light at the End of the Tunnel

Following the unprecedented challenges of 2020, this year saw a steady return of in-person events and the rollout of Covid-19 vaccines. Several people and industries started to see a much-anticipated comeback and recovery in the beginning of 2021.

There were certainly still some challenges for franchisors especially on the retail and restaurant side. This included geographic limitations, where certain areas were still heavily locked down and others weren’t, forcing some restaurants to operate without full indoor dining and some retail stores to operate with restricted capacity.

As the year progressed, more people became comfortable with traveling and spent more money at businesses. It also made it more challenging for businesses in certain industries to satisfy this pent-up demand successfully due to complicated in-person requirements. Additionally, business owners have had to adapt their operations to combat the ongoing labor shortage, resulting staffing issues, supply chain interruptions and product shipment delays.

Much has changed for the foreseeable future, there’s no doubt. That said, in 2021 franchise brands have continued to rise above the challenges and seen growth in their systems overall.

2022: An Opportunity for Franchising to Emerge Stronger Than Ever

2022 will likely be a tremendous year for the franchise industry as a whole with a majority of individual brands set to prosper both in terms of system wide sales and franchise development. Many franchisors have been reporting increased sales in 2021, and there is no reason to believe that trend is going to change in 2022. Additionally, the International Franchise Association predicts franchise development is also on the rise with 26,000 franchised locations expected to be added in 2021 and franchise employment projected to grow by more than 10% to nearly 8.3 million workers.

The sector that is positioned better than any other is home services. With more people spending increased time at home and saving money on travel, the demand for home services and home improvement has skyrocketed since the start of the pandemic. As a result, more and more savvy entrepreneurs are recognizing the uniquely lucrative opportunity to enter the home services space.

Some of the other trends that will likely continue in the franchise industry include prospects investing in concepts sight-unseen. Candidates are more comfortable now meeting online than ever before, and development teams have learned how to adapt and appeal to a prospect’s comfort level.

Technology, of course, has also brought on several changes to the industry. Whether it was Zoom meetings, curbside pickup or QR codes, these new digital tools have helped businesses get by and drastically changed the landscape of the industry. These will all continue to be a huge trend in 2022 as brands adapt to challenges including the evolving workforce and supply chain issues.

Overall, it has been a long and difficult time, but the franchise industry has made it through to the other side. Now, as more and more people look to take control of their destiny through entrepreneurship and customers return to their pre-pandemic habits, it is an incredibly exciting time to be a part of the franchise industry.

I am Steve Beagelman, Founder and CEO of SMB Franchise Advisors. In 1991 I co-founded Black Tie Express, a multi-restaurant delivery service.

Source: The Year In Franchising: Reflecting On 2021, And Anticipating 2022

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Inflation May Get Much Worse This Summer and Could Linger Many Years

Economists at Goldman Sachs hiked their inflation projections this weekend and warned clients that recent strong price spikes seem similar to those that preceded record inflation decades ago, joining other experts in forecasting inflation will last longer than previously expected.

In a note to clients Sunday night, Goldman economists said they expect consumer prices to rise more quickly later this summer as transportation and health insurance costs continue to surge, pushing core inflation, which excludes volatile food and energy prices, from 6% in May to 6.3% in September.

Goldman expects health insurance and automobile prices—two of the largest contributors to inflation during the pandemic—should start “outright” falling by the end of this year as Covid-era growth begins to subside, pushing core inflation down to 5.5% at year-end and 2.4% in December 2023.

However, the economists also acknowledge core inflation has vastly outperformed expert projections this year, consistently rising more than expected over the last six months.

They note the surprise readings are beginning to rival those seen in the 1960s and 1970s—when long-lasting price spikes of more than 10% (solidly higher than the latest reading of 8.6% in May) contributed to prolonged periods of weak economic growth and sparked a decade of lackluster stock-market returns.

In a weekend note to clients, LPL Financial chief economist Jeffrey Roach was more bearish, saying the surge in travel-related demand is a “major concern” for inflation as housing, restaurant and accommodation prices reach new highs.

“Consumers may have to live in a world where inflation consistently runs hotter than the previous decade,” Roach said, citing concerns from central bankers like European Union’s Christine Lagarde, who last week warned there are “growing signs”—including the ongoing war in Ukraine—that suggest “supply shocks hitting the economy could linger for longer.”

“Policymakers must come to grips with a real possibility that inflation rates will not come down to their preferred targets for many years,” says Roach, adding the tight labor market is another uncertainty that could keep inflation above the Fed’s long-standing 2% target.

Inflation ran rampant in the 1970s as multiple energy crises pushed oil prices up as much as 400%, all while central bankers prioritized efforts to improve the labor market—even if it meant risking further price spikes. It wasn’t until Paul Volcker took office as Federal Reserve chairman in 1979 that the Fed pivoted to fight inflation, and though the efforts were ultimately successful, they also yielded a recession in 1982..

To help ease inflation, government is expected to possibly announce lower tariffs on certain Chinese goods, including clothing and school supplies, as soon as this week. However, some experts worry the move does nothing to address domestic supply chain issues driving up costs. The decision “probably won’t move the needle dramatically on inflation,” analyst Adam Crisafulli of Vital Knowledge Media said in a Monday email, though he says “aggressive” discounts set to start this month at major retailers like Walmart and Target could prove “far more important.”

The Fed’s inflation-fighting interest rate hikes this year have tanked stocks and sparked growing fears of a recession. Major stock indexes plunged into bear market territory last month ahead of the central bank’’s largest interest rate hike in 28 years, and the gloomy sentiment has ushered in waves of layoffs among recently booming technology and real estate companies.

“We don’t believe the Fed can stop the issues that are causing inflation on the supply side without absolutely wrecking the economy, but at this point, it looks like they are resigned to the fact that it must be done,” says Brett Ewing, chief market strategist of First Franklin Financial Services.

Source: Inflation May Get Much Worse This Summer—And Could Linger ‘Many Years’—Experts Warn

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E-commerce Profits May Become Harder To Make

THE E-COMMERCE company that retailers talk about most these days is neither Amazon, the American juggernaut, nor Alibaba, China’s biggest. It is Pinduoduo (PDD), a Chinese firm that started in 2015 as an online food supplier, but whose success has driven its market value above $200bn. Last year it was China’s fastest-growing internet stock, rising by 330%.

PDD attracts attention for two reasons. One is its business model. David Liu, vice-president of strategy, explains that it has ridden the rise of smartphone penetration in China to create an e-commerce experience in which people club together to buy products from robot vacuum-cleaners to bananas.

During the pandemic this has expanded into a fast-growing business across thousands of towns and villages, in which PDD’s users gather to bid for shipments of local farm produce at bargain prices. Some term this “community group-buy”. Mr Liu calls it “interactive commerce”. It is one of the hottest parts of the Chinese internet.

The second is the way PDD has shattered the myth of an impregnable fortress surrounding the titans of online shopping. Until a few years ago, China’s e-commerce market seemed a two-way contest between Alibaba and, a rival platform.

No longer. Elinor Leung of CLSA, a brokerage, expects PDD’s share of online retail in China to overtake that of JD in 2021. She expects the number of users to surpass Alibaba. And although PDD shells out huge subsidies to entice customers from poorer parts of China to its app, she thinks it may turn profitable this year.

Remarkably, it has done this less by displacing its bigger rivals than by tapping parts of the market they have been unable to reach. Although online sales of groceries have rocketed during the pandemic, less than a tenth of the 8.1trn yuan ($1.25trn) farm-produce market is bought and sold digitally.

“We are continuing to grow the pie,” says Mr Liu. That lesson applies elsewhere too. However sewn up a market looks, there is opportunity for upstarts because e-commerce is at an early stage of development.

The issue of competition in China has convulsed share prices because of the actions of antitrust authorities. In November 2020 the State Administration for Market Regulation published draft guidelines for platform companies aimed at maintaining orderly competition. In December enforcement of the 2008 antitrust law was strengthened, leading to new investigations and fines.

These have included scrutiny of mergers and acquisitions, community group-buy schemes, price-discounting and discrimination against competitors. Ms Leung wrote in January that the chance of a forced break-up of Chinese internet platforms is remote, because of its impact on industry, the economy and consumers. But she expects more regulation, especially over customer data.

Robin Zhu of Bernstein says the crackdown means tech platforms may have to restrain aggressive sales practices such as selling goods at huge discounts. That may reduce growth, but jobs and innovation plus their support for consumer spending argue in their favour. Alibaba seems the biggest target, but PDD has also drawn fire.

Alibaba is flying “closest to the sun”, Mr Zhu suggests, partly because of heat on its sister company, Ant Group. But he says up to a fifth of China’s retail sales flow through its doors. Chinese regulators stress their support for the platform economy, he notes, so a crackdown is unlikely to be devastating.

The rampant competition in China’s retail market suggests no platform, however large, can expect fully to dominate it. Alongside PDD, Alibaba, JD and Meituan, a food-delivery firm, all target China’s lower-tier cities with community group-buy and other schemes. Alibaba’s Taobao Live platform has led the growth of live-streaming and video, in which influencers sell branded goods at huge discounts.

But the explosive live-streaming market has attracted vigorous competitors, such as Douyin, sister to TikTok, a global social-media app. WeChat, part of a super-app owned by Alibaba’s rival Tencent, allows brands to sell on its site, and gives customers instant access to digital payments.

Everyone is jostling for a share of online advertising. This is especially true in live-streaming, where it is easy to measure the bang for an advertiser’s buck through real-time data, says Michael Jais of Launchmetrics, a fashion-and-beauty analytics company.

In Europe and America, by contrast, the view is that the game has been won by Amazon. The gap between Amazon’s e-commerce market share in America and that of Walmart, the next in line, is far bigger than Alibaba’s lead over the number two in China.

Though Bernstein’s Mark Shmulik reckons Amazon earns little profit on its core retail business, its fast-growing cloud and online-advertising arms generate huge margins that it can plough back into retail expansion.

It had $42bn of cash on its balance-sheet at the end of 2020. Marc-André Kamel of Bain, a consultancy, says Amazon may spend $100bn more on information technology over the next five years than each of the world’s top ten traditional retailers. It will also continue to invest heavily in logistics, putting more pressure on the likes of UPS and FedEx.

Like Alibaba in China, Amazon has drawn regulatory heat. In October 2020 a congressional committee in America said it was looking at overhauling antitrust laws to counter the power of the big tech platforms. It drew attention to the dominance that Amazon has over third-party sellers on its marketplace, and its practice of selling its own goods in competition with them.

In November the European Commission accused Amazon of violating competition laws by using non-public data from third-party sellers to benefit its own retail business.

Amazon says none of this is true. Although it stands tall online in America, by total sales Walmart is larger. Amazon dominates categories like books, but in groceries it is one of many. Trustbusters may have their eye on how it sells products on its website to compete with those sold by third parties, but this is little different from big retailers selling own-label products.

Amazon also has political capital. Brian Nowak of Morgan Stanley says the jobs it provides, its support for small and medium-sized firms, and its technological prowess may all work in its favour.

The recent decision by Jeff Bezos, Amazon’s founder, to hand the chief executive job to Andy Jassy will not end the regulatory fire. But if the pressure rises, it could spin out Amazon Web Services, the world’s biggest cloud-computing company. As in China, as long as the pie is growing, new challengers may emerge.

Some will come from big tech. Many online retailers pay Facebook and Google for their products to be found via search. Online advertising remains the strongest part of their businesses, but Facebook and Google are adding sales channels. Facebook has 160m small firms on its site. In 2020 it let them set up a single online store on its app and on Instagram, its sister platform. Last year Google scrapped commissions for retailers selling directly from its site.

Another source of competition will come from changes in online shopping. Smartphones may overtake personal computers in America and Europe for e-commerce. That will boost the popularity of “social commerce”, or commerce via social media and video. TikTok, a medium for promoting brand awareness, may let its most popular celebrities market products on its site, according to the Financial Times.

The battle will extend to logistics and payment services. In America Amazon delivers more of its own parcels than the US Postal Service. But rivals like Walmart are developing subscription services like Amazon Prime that offer free delivery and other perks.

Tax is another threat. In both East and West, tax authorities have their eye on the digital giants. In 2020 Amazon saw a big increase in its tax liability, yet the administration of Joe Biden is considering imposing higher taxes on America’s most profitable companies.

European governments are levying digital-services taxes on tech firms in an effort to force them to pay more where their consumers are located. Some have drawn attention to the low business rates that e-commerce platforms pay on out-of-town warehouses, compared with those of retailers on the high street. Even China plans to raise taxes on its biggest tech firms.

Ultimately, higher taxes, greater regulatory scrutiny and rising competition may make profits in e-commerce harder to come by. But even if they end up regulated like utilities, few will shed a tear. The e-commerce giants have had a fabulous run so far.

Source: E-commerce profits may become harder to make | The Economist


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Last Mile Is Being Disrupted Again: Here’s How Retailers Can Hold Their Ground

Last mile delivery: It’s been quite an interesting road to travel these past couple of years, indeed!

Amazon did an end-run around UPS and Fedex by ramping up its own-fleet delivery to 72% of its total shipments. Uber and Lyft drove into the last mile, bringing everything from restaurant orders to auto parts right to their existing riders’ doorsteps. And the Covid-19 pandemic famously heralded in an explosion of last mile grocery delivery via Instacart, Shipt, Peapod and others.

In 2021, however, last mile disruption was itself severely disrupted. Gopuff barnstormed its way to a $40 billion valuation with a curated assortment and ultra-fast delivery model that rendered Walmart’s two-hour express delivery “so last year” and made Amazon’s same-day delivery service seem positively ancient.

Some leading last mile players, meanwhile, encroached on first-party offering territory. Instacart’s setup of micro fulfillment centers (MFCs) drove speculation that it would soon begin selling products directly to consumers, while DoorDash has already begun doing just that, growing its ranks of new DashMarts nationwide.

However you view it, the disruption of last mile has become the flywheel, driving a larger transformation of retail. For traditional brick-and-mortar stores, who were already under pressure to adapt to changing consumer expectations and increased competition, this disruption represents both threats and opportunities.

Barry Clogan, Chief Product Officer at Wynshop. Read Barry Clogan’s full executive profile here.

Source: Last Mile Is Being Disrupted Again: Here’s How Retailers Can Hold Their Ground



Elina Geller, Sam Kemmis

Know your travel goals

This is an important consideration when evaluating what you would like to get out of your points and miles hobby. Do you want to travel several times a year to an exotic location, flying in first class on miles and paying for your hotel on points? Do you want to fly to visit friends and family using miles (but don’t care if you sit in economy or business class)? Or do you just want to learn what travel rewards are all about?

The good news is that regardless of your travel goals, understanding the basics of these currencies can make those goals a reality. Using points and miles to see the world can save a lot of cash. And when you get into this hobby, you begin to realize that all sorts of travel is affordable and within reach.

Setting clear travel goals can also help focus your attention and investigation. If you want to visit Japan, you can focus on relevant airlines and hotel programs while ignoring the rest (for now). This can help avoid overwhelm and the paradox of choice.

Think of points and miles (travel rewards) as another type of currency. Just like stocks, crypto, bonds or foreign currencies, travel rewards present a way to pay for your travel experiences and invest in your travel goals without using cash.

Each travel reward currency has its own value, just like a country’s currency. Many points and miles are worth roughly a cent apiece, but values vary … It’s important to do the math whenever you’re considering a particular offer or promotion to figure out the approximate cash value. 100,000 points might sound like a lot, but it depends on what kind of points they are…..more

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Owning Company Stock Can Keep Customers Loyal and Lead Them To Spend More

The fintech app Bumped wants stocks to be the new customer rewards programs. 2021 has been a big year for stonks. Day trading has increased dramatically throughout the pandemic as more people are at home and out of work, and the GameStop short squeeze in January briefly directed national intrigue toward the world of amateur investing, a phenomenon powered by no-fee trading apps like Robinhood.

And while some, like Robinhood CEO Vlad Tenev, believe investing to be the new American dream, a little more than half of Americans (55 percent) own some form of stock, according to a 2020 Gallup poll. Ownership was more common (62 percent) prior to the Great Recession and is still largely tied to factors like education, household income, age, and race.

Yet, stocks are more accessible than ever: Trading fees are extremely low, and employee stock ownership plans (ESOPs) are on the rise. The concept of the “ownership economy” is gaining steam, even among regular Americans who aren’t tuned into the latest tech developments, as evidenced by the NFT craze. The ownership economy’s basic premise is that equity — allowing people to have a stake in a brand, business, artist, or even influencer — generates loyalty, and establishes a relationship between the stakeholder and whatever they’ve invested in.

According to research released by the Columbia Business School in February, stock ownership drives consumer loyalty, and retail investors increase their spending at companies in which they own stock. This is, of course, good news for recognizable brands with devoted followings. The rise of conscious consumerism during the Trump presidency has moved consumers to think critically about the brands they buy from.

For better or for worse, people are demanding more from corporations and are willing to boycott or wage social media campaigns to demonstrate their discontent. On the flip side, the Columbia research shows how consumers are moved to financially support brands they have a stake in — even if it’s only a few shares.

The study, titled “Bumped: The Effects of Stock Ownership on Individual Spending,” analyzed transaction data of more than 9,000 American users from Bumped, a fintech app that opens a brokerage account for users and rewards them with stock through purchases from certain retailers. Users are able to preselect their preferred brands from 16 different groups, like travel and fashion (the study only observed the six most popular categories), and are automatically granted stock when they spend at those stores.

The researchers accessed data on users’ spending transactions before and after they opened Bumped brokerage accounts. They found that after users were granted stock from selected companies, their weekly spending increased by 30 to 40 percent (an average of $23) toward those companies, and remained around that rate for three to six months.

Loyalty, the researchers concluded, was a driving factor in maintaining a consumer’s relationship to a brand, and this incentivized relationship “closely resembles the compensation programs which address executives through stocks.” Prior research has shown that people invest in companies they care about, according to researcher and Columbia associate professor Michaela Pagel.

The study provided new evidence that “owning a stock makes people feel more loyal towards the company and in turn, they go out of their way to spend on that companies’ goods or products,” Pagel wrote to Vox via a Columbia spokesperson. “It’s a case of putting your money where your mouth is and there is a direct link between stock ownership and happiness via consumption, which hasn’t been shown before.”

Bumped CEO David Nelsen told Vox that the app allows for consumers to participate in an “entirely new reward mechanism,” similar to points or cash-back rewards. This isn’t exactly a novel idea; people naturally hold greater affinity for things they’ve invested in, but fintech developments that track and categorize credit card spending have only recently made this rewards process possible, he added.

“The concept of having millions of people investing small amounts became much more prevalent with Robinhood,” Nelsen said. “We didn’t have fractional shares when I was an investor, and it was harder to own things. Now, this technology is more widespread, and companies are building tools that break things down into smaller units to allow more people to participate.”

This idea of fractional ownership and equity is not exclusive to publicly-traded companies. Tech enthusiasts can become accredited “angel” investors for startups in need of funding, now that the Securities and Exchange Commission expanded its eligibility requirements for private investors. Similar to NFTs, fans can use bitcoin to “invest” in influencers through BitClout, a startup that claims to sell “shares” of a celebrity’s clout on the blockchain.

Most research into consumer and investor behaviors has generally categorized people as either a consumer or an investor. A 2009 study published in the Journal of Consumer Marketing was one of the first that sought to combine those two categories, although it relied on self-reported data to analyze participant motivations.

Still, it found that investors are motivated to engage in brand-supporting behaviors in addition to purchasing more from the company, such as serving as informal brand ambassadors. These behaviors solidify a longer-term commitment to a company’s success, compared to cash rewards or points that can be redeemed over a shorter period of time.

Some user testimonies Bumped shared with Vox emphasized the value of having an ownership stake, but similar to ESOPs, it’s unlikely that the fractional stocks offered will amount to a significant percentage of total company shares.

However, this could still have a greater impact on the corporate end, as Bumped looks to expand its offerings through partnerships with different companies and banks. “You’re allowing millions of people to become small shareholders,” Nelsen said. “That can be extremely impactful for any brand.”

Source: Owning company stock can keep customers loyal and lead them to spend more – Vox


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