What a Recession Could Mean for the Canadian Franchise Industry
🕒 Estimated Reading Time: ~3 minutes
Recession. It’s a hot word in global economics currently. But how is Canada itself close to one?
Analysts say that the Canadian economy isn’t as bad as many believe, but it is in a precarious position. According to CBC reports, GDP growth in Canada is better than in any other G7 country (through July 2022). However, most forecasts show the Canadian economy slowing down to negligible or zero growth near the end of the year.
“We're increasingly concerned that a conjunction of headwinds, along with [debt] imbalances in the household sector, could push the Canadian economy into recession,” writes Tony Stillo, a director with Oxford Economics, in a research paper released in the summer of 2022. “We still view a soft landing as the most likely outcome for the economy, but we estimate the probability of a recession over the next 12 months has risen to about 40 percent.”
RBC Economics is a little clearer with its forecast. It posits that “a historic labour squeeze, soaring food and energy prices, and rising interest rates are now closing in. Those pressures will likely push the economy into a moderate contraction in 2023.”
However, the entities agree on this: Even if a recession hits, it will not be as bad as 2008-09.
But with the notion of recession all around, it doesn’t hurt to know how franchising -- and which franchise industries -- tend to do well when the economic environment turns a little adverse.
The Current State of the Canadian Economy
Until recently, Canada’s economy has been going strong — so strong that it appears there’s no other way than for things to start leveling out or declining. Two signs indicate a moderate decline on the horizon — labour shortages and rising supply chain costs.
In recent months, businesses have seen a steep decrease in position applicants. June 2022 had 70% more job openings than before the pandemic. With fewer team members, it’s proven harder for businesses to meet consumer demands, causing a shift in deliverables and the organization’s ability to make money.
Likewise, supply chain strains have increased prices for basic household needs, such as fuel and groceries. These strains and higher interest rates have decreased the consumer’s purchasing power. Together with a smaller workforce, businesses are feeling the pinch.
Historical Franchise Patterns in Economic Downturns
Despite the doom and gloom headlines, there’s hope for potential franchise owners to start and successfully grow a franchise. That’s because historically, many franchises continue to receive funding despite what’s happening in the economy. One thing to consider as you try to get a loan to start your franchise, based on historical patterns during economic downturns, is to be prepared for a more rigorous qualification process.
Financial institutions typically become more risk-averse during economic downturns. Therefore, if you are applying for a small business loan when starting your franchise, you will have a better chance of receiving the loan with a better personal credit score.
Another way to secure funding to start your franchise is to be choosy about the franchise you open. Finding a franchise in a recession-proof or recession-resistant industry is helpful. Choosing a franchise that will give you the business plan and stats to help you secure that funding is equally helpful. In other words, the more information you can offer the bank when buying a franchise during an impending recession, the better.
Franchise Industries That Do Well During Recession Periods
Analyzing consumer behaviors during an economic downturn can help you hone in on the strongest industries to start a recession.
Home-service franchises aren’t significantly impacted during an economic downturn because their work is a must-have versus a nice-to-have. When a repair needs to be fixed, homeowners rarely wait for the economy to boom again before getting it fixed.
Some retail franchises do well too. Franchises focusing on lower-cost items or food tend not to see a tremendous shift in consumer spending. However, retail locations that offer sit-down dinners, clothing, or travel might have a harder time getting buyers in the door when household budgets are cut.
Stay Mindful When Starting a Franchise
When starting a franchise, be mindful of what’s on the horizon economically. In doing so, you can choose to enter an industry that gives you a higher chance of breaking even faster and attracting consumers despite the slowed economy.
Kimberly Crossland is the founder of Roadpreneur and Cruisin' + Campfires, two companies designed to keep families together and living in freedom through travel and entrepreneurship. The goal of both businesses is to inspire meaningful change through the power of a strategic, thoughtful approach to life and business. In her free time, you can find her looking for a new adventure together with her two boys.