Inflation & Franchising

asked about 2 years ago

Inflation has its advantages and disadvantages. For business, it’s franchising that sits strong when the economy experiences an inflationary rise.

In its most basic terms, inflation is when the prices of everyday goods and services increases. For consumers, the dollar buys less and the cost of living rises. Inflation is described as a percentage and the two commonly used indexes used are the Consumer Price Index (CPI) and the Wholesale Price Index (WPI).

The WPI is the increase in price of bulk goods at a wholesale level. CPI is the increase in prices of products and services at a customer level. When the WPI increases, usually the CPI will follow because, eventually, the customer will be the one who covers this increase in price.

According to the U.S. Bureau of Labor Statistics (BLS), the Urban Consumer CPI increased 7.5 percent between January 2021 and January 2022.

Advantages and Disadvantages of Inflation

Inflation has advantages and disadvantages. For consumers, the disadvantages of inflation are that living costs rise and the dollar buys less. For businesses, the disadvantages are that costs of products and services increase, therefore prices need to be raised, meaning the consumer has to pay more. The difficulty comes when a consumer doesn’t want to pay more for your particular product or service.

One of the advantages of inflation is that the value of assets, like property, increases. So, not only the value of the property, but also its rent. Another advantage of inflation is that, generally, there is an increase in wages. Inflation enables economic growth because inflation is usually the result of a strengthening economy.

For franchising, inflation can have both advantages and disadvantages. However, according to economists and franchise expert Derek Cafferata, CEO and President of All State Franchise Finders in Fort Worth. TX, franchising is well placed to take capitalize on the advantages of inflation and to counteract the disadvantages of inflation.

Brand Expectation of Franchising

One of the greatest aspects of the franchise business model is its branding. The concept of franchising is to have consistency across the business. No matter what location a person is in, they can expect the same quality product or service and the same level of customer service from a particular franchise. This continuity and consistency can help retain customers and gain new customers during an inflationary period.

Customer Satisfaction a Focus

Research into consumer purchasing habits finds that customer satisfaction rates as more important than price increases. While franchisees need to be careful to manage required price increases when passing them onto customers, it is wise to focus efforts on maintaining and improving customer satisfaction.

“A franchise who can meet, and exceed customer satisfaction, will better navigate their way through an inflationary period,” says Derek.

Consider Product Lines

Franchisors have the benefit of being able to study sales performances of products and services on a large scale. “Be prepared to drop products or services that aren’t selling well,” says Derek. “Focus on the inventory that is popular with high margins.”

Franchise Experts Here to Help

For franchisors and franchisees it is always beneficial to seek the advice of a franchise expert. Derek Cafferata leads a team of experienced and knowledgeable franchise experts at All State Franchise Finders. All State Franchise Finders is an award-winning company who specializes in helping in all aspects of franchising. For more information call 1-800-544-2161 or visit today. ALLSTATEFF.COM – your award-winning franchise experts.