Did you know that during the recent Covid-induced recession, the United States economy contracted 31.4% in the second quarter? In April 2020 alone, 20.8 million jobs were lost across the country.
Those are some staggering statistics! When recessions occur, certain industries are hit the hardest while others are barely affected. In the recent recession, industries like retail, travel, and hospitality faced the hardest times. Industries like e-commerce and software/tech actually saw stability or growth during this time period.
It’s difficult to predict when the next recession will occur or what will be the cause, which can create anxiety for franchise investors. You can quell that anxiety by learning about what to look for when comparing franchise opportunities.
Here are 5 attributes commonly found by companies that are resistant to recessions!
1) They fulfill basic human needs
As human beings, we all need food, water, warmth, and shelter. Businesses that fulfil any of these basic needs are far less likely to be affected by a recession than other types of companies. This means companies like grocery stores, home-repair services, and utility companies will always have a stable demand, even in economic downturns.
When money gets tight, people tend to cut out their “wants” and focus on their needs. That’s why businesses that help meet these basic human needs are the most recession-resistant of them all!
2) They offer a discounted pricing model
When economic contractions occur, consumers become a lot more price-conscious when making purchase decisions. People who used to shop at Whole Foods and Nordstrom are a lot more likely to become regulars at Aldi and TJ Maxx.
As a franchise investor/owner, operating on a discounted pricing model may mean lower profit margins in a normal economy. However, this discounted pricing model may actually be your saving grace in the case of a recession!
3) They are service-based
If you suddenly only had $100, what would you prioritize?
A) The new pair of running shoes you’ve been wanting
B) The oil change you should’ve had done 1,000 miles ago
Most people would go with option B – and for good reason. The idea of being stranded on the side of the highway with smoke emitting from your car’s hood is a lot scarier than a mild foot cramp experienced from your old New Balance’s.
Investing in companies that provide necessary services is a great way to protect yourself from the effects of the next pandemic. You also get the satisfaction of knowing that you’re helping people with services that they actually need!
4) They are flexible on how they operate for their customers
Imagine being the owner of a local movie theater during the recent pandemic. Your entire business is based on providing an in-person experience. When social gatherings became unsafe, you wouldn’t have had many options on how to keep your revenue stream alive.
Recession-resistant companies are usually flexible on how they can provide goods/services to their customers. Companies like U-Haul and Life Storage quickly pivoted to contact-less solutions where they could still provide their services to those that needed them. When considering franchise options, take a second to think about how flexible the brand would be in a recession/pandemic.
5) They have effective cash-flow management
If you’re living paycheck to paycheck like 56% of Americans, losing your job or any minor emergency can seem like the end of the world. Businesses are similar, and those with poor cash-flow management are normally in for a rude awakening when recessions occur.
When considering franchise opportunities, it’s wise to come up with a tentative financial game plan that includes a strategy of how you will remain cash-positive throughout the life of your operations. A business that has up to a year’s worth of expenses available is going to be much more recession-resistant than a company with only a month’s worth of expenses in liquidity!
Conclusion:
After learning about all of these benefits, do you think that investing in a recession-resistant franchise might be the perfect way for you to achieve your entrepreneurial dreams? If so, you’ll definitely want to join our webinar this weekend which will be showcasing 5 amazing franchise brands that you can invest in!
Each company will feature a 5-minute overview presented directly by the franchise themselves. We’ll see you there!