The Cost Of Living Crisis - How To Weather The Storm

This year has been disastrous for individuals and businesses alike, who have seen the Bank of Canada raise interest rates six times since March 2022. With the bank warning that rates are expected to continue to rise beyond the current 3.75% in an attempt to rein in inflation, Canadians will be facing a higher cost of living during the lead-up to Christmas and beyond.

The impact is already being felt sharply. Many customers are reducing their spending, which is resulting in an increased rate of unemployment as business owners who are feeling the pinch are forced to reduce their staffing numbers to keep afloat.

Even those who still have their jobs are feeling the pinch, with inflation combined with static salaries effectively delivering a pay decrease for the same amount and quality of work.


What Can Franchises Do To Weather The Storm?

The first thing for any business to do is accept that this situation is happening and look for ways to make efficiencies. For some, this does mean laying off staff in order to save money, especially if sales are down or they are forced to run at reduced capacity. For others, a serious discussion should be had with their franchisor to understand what support is available, and whether they can source products from cheaper suppliers or combine their orders with those of other franchisees in order to gain cost efficiencies.

Businesses that are really struggling are unlikely to see much improvement through increased borrowing, but if they are renting premises, they could approach their landlord about a temporary rent reduction or even a payment freeze if income is too far below expenditure. A change of premises to a cheaper location is an option but is unlikely to inspire consumer confidence in the brand, so it should be avoided for as long as possible and only undertaken as a last resort following significant discussion with the franchisor to ensure that PR and communications are handled delicately.

Those running a service-based franchise or a home-based franchise will likely find it easier to keep going without making any drastic changes to their business operating model, although they should remain sensitive to the fact that their customers may be struggling for money and unable to be as loyal as they have been in previous years.


The Bottom Line

This Christmas is unlikely to be the same as previous years. Consumers will be looking to rein in their spending and are less likely to indulge in luxury or discretionary spending. Franchises that offer everyday services and have low running costs will likely find this period of austerity easier to handle, but for those goods-based franchises with high running costs and many members of staff, a conversation with your franchisor will help to set the direction going forward. Economies of scale should be embraced wherever possible