2022 Small Business Franchise Trends

A look at the state of franchises in 2022

Each year, Guidant reaches out to the resilient, hardworking small business owners of America. We learn who they are, what their lives as small business owners are like, what their plans for the future are, and how their business has weathered current affairs. Together, this information makes up the Small Business Trends report.

Franchises are a popular option for first-time small business owners. With a proven business model, marketing assets, and the support of a corporate office behind you, starting a franchise is often viewed as less risky than starting your own business from scratch. Here’s how franchises have faired in 2022.

Who are Franchise Owners in 2022?

Starting a franchise often looks a little different than starting your own independent business. As a result, the people who are drawn to the opportunity are a bit different, too.

As with all business owners in general, franchisees’ biggest motivation for starting a business was a desire to be their own boss (64.52%). That said, franchisees were nearly 7% more dissatisfied with corporate America on average (54.38% compared to the average of 47.64%). For franchisees, it was less about pursuing their passion (25.81% compared to the average of 31.00%), and they were also more likely to have been recently unemployed (29.49% compared to 23.44%). Just over a quarter (25.81%) of franchisees reported not being ready to retire as a reason for starting their business.

Generation X Inches Ahead

Small business overall is still predominantly made up of owners that belong to Generation X or the Baby Boomers (91.91%). However, at least in franchising, Gen X is slowly pulling ahead, making up a full 50% of all franchise owners surveyed. Boomers came in close behind at 44.44%, and the remaining few respondents were Millennials (4.55%) or from the post-war generation (1.01%).

Diversity in Franchising

Franchising, as is true for small business in general, continues to be predominantly white and male.
Women small business owners took a hit this year, and franchisees were no exception. Only 23.15% of our respondents were women. This follows the nationwide trend of women bearing the majority of the burden of child-rearing during the coronavirus pandemic, and struggling to return to the workforce. During 2022 we hope to see this trend bounce back.

Most respondents identified as White or Caucasian (84.26%). There are slightly more Hispanic, Latino, or Spanish-Origin franchisees than independent business owners (6.64% compared to 4%), and roughly the same amount of Black or African American franchisees. Franchises may find that there is room for growth among the Asian and Asian-American (2.84%), Indigenous American (<1%), Native Hawaiian or Pacific Islander (<1%), Middle Eastern or North African (<1%) demographics.

As we mentioned in our primary Small Business Trends 2022 Report, diversity in small business and franchisees was on the rise prior to the coronavirus pandemic. Whether our data sampling methods or respondent pool were different enough to fail to reflect that change, or whether our data is a true reflection of the truth, is hard to say.

That this data follows nationwide trends is a hard reality to swallow. Guidant aims to increase the number of people who succeed in small business, which includes franchising. We especially want to enable the success of entrepreneurs of color, women in business, and other underserved minorities. We sincerely hope the diversity of these figures will increase in the years to come.

Political Affiliation

Most franchisees identified as Republican (39.44%), though a significant portion felt they didn’t belong to or feel represented by any political party (31.30%). Finally, 23.00% identified as Democratic, less than 5% identified as Libertarian, and less than 1% identified as Green.

Respondents were remarkably uncertain about small business given the political climate, though on the whole, franchisees were more pessimistic than average. Roughly 37% of respondents were somewhat or very confident, while 42.39% of respondents were somewhat or very unconfident. The majority of respondents did not have strong opinions, though: given their five options, 62.21% opted for a ‘somewhat’ answer (somewhat unconfident, or somewhat confident).

What are Franchises Like in 2022?

All small businesses took a hit during the COVID-19 pandemic, but it’s safe to say that franchisees are likely recovering faster — and their franchises growing. Sixty-nine percent of respondents reported owning franchise locations that were either in the process of opening, or less than 5 years old. That’s more than 10% higher than the overall average of 58.61%. Whether fresh locations merely held out better, pivoted quickly, or leveraged their franchises’ support to weather the storm is unclear. The length of franchise ownership does appear to be slightly shorter than that of independent business, with only 9.21% of businesses being eleven years or older, compared to the 18.5% average.

New or Existing?

Of the franchisees surveyed, 75.58% chose to open a new franchise location as opposed to purchasing a previous location. This is in direct contrast to independent business owners, who preferred to purchase an existing business as opposed to starting one from scratch.

Industry

As with the average, the largest industry category in franchisees this year was retail (storefront, eCommerce, etc.) at 16.75%. Neck-and-neck was Health, Beauty, and Fitness services (16.28%), significantly different than the average of 9.71%. Despite taking a serious hit during the pandemic, fitness franchises such as Anytime Fitness or Orange Theory Fitness remain a popular business type funded through Guidant.

The remaining three in the top five were Business Services (in a tie with Health, Beauty, and Fitness at 16.28%), Food and Restaurants (13.49%), and Residential and Commercial Services (11.63%).

The two other categories of note were Care Services (child, pet, or at-home care) at roughly 7% and Automotive (sales, repair, and detailing) at 4.19%. The remaining twelve categories were all less than 2%.

Profitability and Growth

This year, 53.13% of surveyed franchise locations reported being profitable at the time of our survey. Given the challenges of the past few years, this is not surprising. As mentioned in our main report, there may be no reason to panic: businesses often take two or three years to become profitable, and the majority of surveyed franchise locations were less than five years old.

In terms of priorities, independent owners and franchisees are in agreement. A minority of franchisees are looking to open new locations (11.98%), but the large majority are focusing on either growing or sustaining their current locations (75.11%). Just under 13% are looking to sell.

Independent and franchise location owners appear to be taking roughly the same approaches to growth, as well. The three reported areas of investment were staff increases (55.76%), expanding or remodeling the business (29.95%), and digital marketing (42.86%). It’s worth noting that significantly more independent businesses were looking to expand or remodel their business (41.02%). That’s a difference of more than 10 percent! The reason for this difference is unclear: It could be that modifications or expansions to franchise locations are more limited due to brand requirements or restrictions. It could also reflect less of a need to remodel in the first place.

Hiring During the Great Resignation

Hiring was difficult for franchises this year, as it was for everyone. Of the respondents that did hire this year, roughly 77% of franchisees reported hiring as somewhat or very difficult. This is about 6% higher than the average of 70.73%.

When asked why positions were difficult to fill, a low number of applicants was reported as the greatest cause (48.88%). As with the average, competition from other employers (26.97%) and lack of work experience (25.28%) were also commonly cited reasons.

According to respondents, the most difficult position to fill were retail- and sales-related.

The Franchise Response

To overcome the hiring challenge this year, franchises, like businesses nearly everywhere, have increased compensation (65.19%). They are also making a significant effort to retain employees (39.78%). This is roughly 6% higher than the average, which makes sense. Franchise employees have valuable brand knowledge that is difficult to replace (hence the controversy around franchise no-poach clauses).

The remaining strategies in the top five were expanding recruitment advertising (29.83%), handing out hiring bonuses (20.44%), and increasing benefits (18.23%).

What Skills do Candidates Lack?

Both independent businesses and franchises alike report candidates having a lack of needed business experience. The three most common skills candidates were lacking include critical thinking/problem solving (32.39%), communication (30.68%), and sales/customer relationship management (25.00%).

Other Challenges

Behind retention and recruitment, the top three challenges were lack of capital/cash flow (30.41%), changing operations in response to COVID-19 (28.57%), and marketing/advertising (22.58%). Fewer franchisees reported struggling with changing COVID-19 operations than independent business owners. It’s possible this was due to corporate franchise guidance.

Is the Pandemic Still Having an Effect on Franchises?

While most franchisees feel that the pandemic isn’t over (57.75%), they overwhelmingly agree that they’ll survive (82.16%). This optimism extended beyond their own business as well: forty-nine percent of business owners felt somewhat or very confident in small business as a whole, given the context of the pandemic. Only 35% felt somewhat or very negative, and the remainder of respondents were neutral.

The Future of American Franchising

Small business, including franchising, drives 46.8% of private workforce employment and has been the backbone of the COVID pandemic recovery.

In the wake of the COVID-19 pandemic and Great Resignation, franchises are expanding rapidly. If you’ve got the qualities of a great franchisee, give us a call! You don’t even have to have a franchise in mind — Guidant can introduce you to the right franchise for you, and even help you get funding.