News and Updates

By: Bernie Cahiles-Magkilat (Manila Bulletin, July 26, 2020)

The Philippine franchising industry, mostly micro and small enterprises, has called on government for rescue as franchises practically stood still leaving majority of their workers jobless following the imposition of lockdowns starting mid-March this year.

A survey jointly conducted by the Philippine Franchise Association (PFA) and the PWC Philippines showed that what used to be a vibrant and dynamic franchising industry has practically stood bleeding since the implementation of lockdowns due to the coronavirus pandemic.

As this developed, PFA Chairman Richard Sanz has called on government to include the franchising industry from the economic stimulus package.

PFA President Sherill Ramos Quintana, who shared the survey results, said the survey was conducted from May 6 to May 25 during the Enhanced Community Quarantine period covering 79 percent of the PFA member-franchisers as respondents representing over 1,100 locations in the country.

Using the expenditure methodology, as of year-end 2019, franchising has been a dynamic contributor to the Philippine economy with 7.2 percent contribution to the GDP which is equivalent to P1.4 trillion pesos and 2.7 percent to the gross national income (GNI) which is equivalent to P51 billion. With its multiplier effect and with its 90 percent success rate for start- ups, franchising saw the creation of more than 120,000 enterprises generating more than one million jobs both locally and internationally.

Franchising has also been an important creator of MSMEs, which is the backbone of any economy. “In fact,” Ms. Quintana said, “close to 70 percent of PFA members are MSMEs. But more importantly, majority of the franchisees of our members are micro or small enterprises. Yet, these are the businesses spreading all over the Philippines opening jobs and other businesses for our fellow Filipinos.”

The Philippine franchising sector was so gung-ho that it was in an expansion mode before the lockdown. Ms. Quintana cited a franchisee of her brand that opened a mere 2 days before the lockdown was declared. And it has been on survival mode ever since.

But with the COVID 19 pandemic, Quintana reported that majority or 82 percent of respondents said the COVID-19 crisis has the significantly impacted their businesses with 72 percent projecting losses of over 50 percent on their 2020 revenue.

The survey further showed that potential global recession is the number one concern among its members, some of which have foreign franchisees. Members said that global recession would lead to further decline in consumer confidence resulting in lower consumption and consumer demand.

Other top concerns include the lack of comprehensive and tested emergency preparedness plan, effects on the workforce resulting to reduction in productivity, and supply chain issues such as lack of available suppliers/raw materials and logistical concerns.

As companies prepare for the opening of the economy, the survey showed that 63 percent of respondents expect to implement temporary furloughs while 39 percent are planning are planning retrenchment. 

In terms of productivity, 46 percent of the respondents expect productivity issues due to lack of remote work capabilities; 35 percent saw the streamlining or reduction of franchise operations; and 30 percent feared the reduction or cessation of their franchise business.

Of the 44 percent who said they were willing to resume their operations in the malls, 60 percent also said that they are still not ready.

“It is clear that the franchising sector needs help today to become a major economic contributor again,” Ms. Quintana said. Prior to COVID-19, the franchising sector was one of the most important contributors to the economy especially in the areas of enterprise creation and job generation. Many Philippine franchises were also aggressively expanding overseas.

“If propose stimulus bills aim to help critically-impacted industries, why not industries that create businesses and jobs like the franchising industry?” Ms. Quintana suggested. “Because of our capacity to create businesses and jobs, I think we can be categorized as a critically-important industry. We only need a push so that we can soar again.”       

Sanz said that 70 percent of the survey respondents will need P1 to 20 million to recover from the crisis which they intend to use for working capital requirements, inventory and materials, and improvement of technology.

Other priority government interventions for their bounce back include tax incentives, loans with longer grace period and relaxed requirements, provision of wage subsidies, and, ease on restrictions in trade and retail.  

Despite the challenges, the same survey results showed resiliency in the sector as franchisers sought ways to adapt to the disruption. During the ECQ, the respondents shared the pivots they have undertaken to continue their businesses such as work from home (42%), introduction of new products or services (39%) and shift to online platform (22%).

Mr. Sanz, who also sits as PFA Director for Digitalization, highlighted that during the ECQ, 22 percent of the respondents said they were able to generate more than 60 percent of their sales online compared with only less than 10 percent online sales prior to ECQ. 

“While the COVID-19 crisis hit us badly, there will be a time when we will consider this crisis just a speed bump, if we are given the chance to recover. We, in PFA, have always believed that there will be new opportunities in the new normal. Meanwhile, we have to invoke the Bayanihan spirit and work together for our mutual survival,” Mr. Sanz said.

“The franchising sector, together with its partners in the private and public sectors should work together so that we recover as one. And when this happens, we can make the Philippines a nation of opportunities once again.”