Before COVID-19, food franchises seemed like a very safe investment. After all, everyone needs to eat! However, the landscape has become more challenging, yet there are several ways food franchises can remain profitable.
The Issue at Hand
The food industry in Canada is currently facing numerous challenges:
- The COVID-19 pandemic led to lockdowns, temporary business closures, and a reduction in foot traffic.
- Droughts in prairie provinces have caused ranchers to disperse their herds.
- Floods in other areas have resulted in crop failures.
- The war in Ukraine has disrupted the supply of wheat, affecting the baking industry and increasing the cost of animal feed to unprecedented levels.
- Recruiting skilled workers in the hospitality industry has become difficult, forcing businesses to offer higher wages to attract and retain staff.
- Inflation in Canada has risen to 6.8%, the highest it has been in 31 years.
The Cumulative Effect
Food franchises are inevitably facing the need to increase prices to stay profitable, which risks reducing customer numbers. While consumers expect price hikes, as they have already seen in grocery stores, it doesn’t mean they can afford them.
Strategies for Food Franchises
It is crucial for food franchises to scrutinize their costs and make small changes to reduce expenses. By cutting input costs, businesses can minimize the impact of necessary price increases. This should be the primary approach to controlling costs.
1. Alternative Packaging
High oil prices are affecting the plastics industry, making food ingredients and plastic packaging more expensive. Sourcing non-plastic products could be an ecologically and economically sound decision that also appeals to consumers, potentially maintaining their loyalty during these challenging times.
2. Bulk Discounts
Negotiating bulk discounts on non-perishable items can help reduce unit costs. Understanding the profit margin on each aspect of the business is essential to identify areas for cost savings.
3. Reasonable Price Adjustments
Where cost savings are not viable, implement reasonable price adjustments to keep the business profitable and sustainable.
By adopting these strategies, food franchises can navigate the current economic challenges and continue to thrive.