Wondering what’s ahead for the franchise industry? From the categories with the biggest growth opportunities to the power and potential of AI, here’s what you need to know as you embark on your franchise journey in 2025
2024 brought with it many ups and downs in the forms of a fluctuating economy, rising inflation rates, and labour concerns in many of the sectors that franchising operates in. With these cautionary tales in mind, we tapped Gary Prenevost, a franchise consultant with FranNet and a well-recognized face to those who have attended Canadian Franchise Association events both in person and virtually, to comment on where the next 12 months will take our industry.
Franchise Canada (FC): What sectors within Canada’s franchising industry are poised for the most growth in 2025, and how will franchise brands within these sectors need to pivot to keep up with demand?
Gary Prenevost (GP): 2025 should be a very strong year for franchising in Canada, but given the economic uncertainties on the horizon, Canadians will be seeking lower cost opportunities that mitigate risk.
The appetite for low-cost service-based businesses will likely see strong interest in 2025; these include home- and mobile-based service franchises, such as:
- residential cleaning and janitorial services;
- B2B professional services, including business coaching, marketing, and financial services;
- home improvement/home maintenance; and
- senior care (medical, non-medical, relocation, etc.).
Location-based businesses are substantially more expensive, and several sectors should continue to see strong growth, but given the higher investment, risk mitigation will be important. To mitigate risk, look for franchises that are more need-based than want-based—people buy need-based products and services, regardless of what the economy is doing, while impulse purchasing drives want-based businesses. The softer the economy is, the less money families have to spend on things they enjoy but don’t necessarily need.
Some categories to pay attention to are:
- specialty pet products and services;
- health and wellness (with more emphasis on health); and
- automotive service, especially in the tires services niche.
Franchisors must demonstrate the ability to capture and analyze customer data and ensure that franchisees consistently offer the experience at or above customer expectation level. This means investing in AI and stronger field coaching.
FC: Though efforts have been taken to reduce inflation at a government level, there is still concern among Canadians about the cost of living and the economy. Why and how does franchising remain a viable pathway to entrepreneurship and potential financial freedom?
GP: Inflationary pressures have taken their toll, and the second half of 2024 has seen slower job growth; FranNet clients report that it has also been taking longer for people to find their next job than in 2023. While inflation is shrinking, we’re also seeing significant weakness in the Canadian dollar, which will likely drive up the cost of some goods and further contract the job market. Even in times when good jobs are scarce, people still have to work, and some therefore consider franchise ownership.
Franchise ownership is a risk mitigation and time compression strategy. Risk is mitigated because franchisors have invested hundreds of thousands to millions of dollars while harvesting the collective experience of all their franchisees over time, to build and optimize their business systems and processes. New franchisees benefit from using this proven track as a foundation instead of having to figure everything out on their own. This is then coupled with the initial training that franchisees receive to rapidly learn the core functions of the business, and ongoing coaching to ensure they’re focused on building the right skills to grow their businesses faster than they would as an independent, non-franchised business owner.
Not all sectors will perform well though, due to some strong headwinds the Canadian economy is facing, including:
- Labour shortages, especially for entry-level workers, which will only intensify in 2025. 2024 saw significant changes to the typical supply of hourly transient workers, the temporary foreign worker program was redefined, and the Canadian government has significantly reduced their immigration quotas and gutted support for international students.
- The Canadian dollar is lagging. Our currency is forecast to drop to $0.67 USD in the coming months, which will bring additional inflationary pressure to the cross-border supply chain. Many franchises sold within Canada are U.S.-based, with franchise fees in USD, so the cost to launch will be higher.
FC: Home sales have remained relatively flat this year, but the Bank of Canada has cut rates, which may provide some relief. Does this indicate that there may be greater demand for home renovation services now, and possibly services within the real estate market in the coming years?
GP: The home renovations industry is considered an old-growth industry that shows incredible resilience regardless of economic cycles, and this pattern should continue in 2025. Because home and condo sales are likely to remain soft until we see further interest rate cuts, many Canadians are deciding to stay put and improve/expand their living quarters, which should continue to fuel the home improvement franchise sector. The Canadian dollar is the weakest it’s been in many years, so some tempering of this sector’s growth should be expected due to the higher cost of imported goods needed for the home improvement sector.
FC: In previous years, senior services have been an in-demand sector, due to the aging population. Is this a trend that will continue into 2025 and beyond?
GP: The senior demographic continues to grow substantially while our healthcare system struggles to keep up with providing adequate care for the aging population; this fuels the demand for senior services and will do so for the foreseeable future. While medical and non-medical in-home care makes up the backbone of franchises serving this sector, one should consider franchises that provide services to seniors for things like relocation assistance and work that seniors struggle to do for themselves (e.g. yard maintenance, residential cleaning, transportation, etc.)
FC: Are tech-focused franchise companies on the rise? And how are franchise brands in other sectors embracing today’s rapid advancements in AI and other new tech?
GP: Because technology evolves so quickly, it’s difficult to build a franchise model focused on technology as a service, other than the break-fix model for repairing damaged hardware. We’ll likely see a few franchisors enter the “AI-as-a-service” market over the next few years as an add-on to other B2B professional services already being offered.
Technology will absolutely influence franchising, though. Strong franchisors are adopting AI to harvest and process consumer data faster, optimizing customer attraction, customer retention, and operations to help franchisees improve their performance.
FC: Overall, how do you predict the franchise industry will change—or remain the same—in the coming year?
GP: We anticipate strong new franchise growth in 2025. There are several factors driving this growth, including:
- The aforementioned shrinking job market pushing more people to consider business ownership.
- Companies adopting mandatory return-to-office policies—we’ve seen a notable increase in desire for work/life flexibility in the past two years, and many people have come to cherish this flexibility and are seeking self-employment to keep it.
- Millennials and Gen Z seeking self-employment in the hope of realizing a sense of social contribution; while many Gen Zers will rely on “the bank of mom and dad” for funding, Millennials are now mid-career and should have built enough wealth to leverage financing.
- The near-unreachable cost of housing in Canada’s biggest cities; some people will use their savings to buy a business instead of a home, giving them the ability to create wealth far faster than traditional employment so that they can achieve home ownership much faster. It also gives them greater location flexibility, including moving to other cities to get the right business in an optimal location.
- The growing movement away from DEI policies may trigger feelings of exclusion and limitation for some people; self-employment is a clear option to counter this negative culture change.
While new franchise growth will be strong, it doesn’t mean new franchisees will have an easy path. With the economic uncertainties and headwinds, Canada is likely in for a softer economy in 2025. It might be more challenging to start a new franchise during a slower economic cycle, but people who do launch will build a solid foundation of staff, leadership skills, and customers so that they’ll be first in line to take advantage of the lengthy growth cycle that historically follows a short economic slowdown.
All things considered, 2025 should be a great year to consider franchise ownership!