This year has been tumultuous for both individuals and businesses, with the Bank of Canada raising interest rates six times since March 2022. With further rate hikes anticipated to combat inflation, Canadians are bracing for a higher cost of living heading into the holiday season and beyond.
The repercussions are already evident. Many consumers are tightening their belts, leading to a surge in unemployment as struggling businesses scale back their workforce to stay afloat. Even employed individuals are feeling the strain, as stagnant wages coupled with inflation effectively translate to a reduction in real income.
What Steps Can Franchises Take to Navigate This Crisis?
The first step for any business is acknowledging the reality of the situation and seeking opportunities to streamline operations. For some, this may involve workforce reductions to cut costs, particularly if sales are declining or operations are constrained. Others should engage in open dialogue with their franchisors to explore available support options and assess the feasibility of sourcing from more affordable suppliers or consolidating orders with fellow franchisees to achieve cost efficiencies.
Businesses facing severe financial strain may not benefit significantly from increased borrowing. However, those leasing premises could negotiate temporary rent reductions or payment freezes with landlords if revenue falls substantially short of expenses. Relocating to cheaper premises is a last-resort option, as it may undermine brand confidence and should only be pursued after thorough discussions with the franchisor to ensure appropriate PR and communication strategies are in place.
Service-based or home-based franchises may experience relatively less disruption to their operating models. Nonetheless, they should remain attuned to the financial challenges faced by their clientele, who may exhibit reduced loyalty due to financial constraints.
The Outlook
This holiday season is poised to diverge from past years, with consumers adopting more conservative spending habits and curtailing luxury or discretionary expenditures. Franchises offering essential services with minimal overheads are likely to weather this period of austerity more resiliently. Conversely, goods-based franchises with substantial operating costs and staff may require strategic guidance from franchisors to navigate the challenges ahead. Embracing economies of scale wherever feasible will be instrumental in charting a path forward.