Crises Don’t Kill Franchise Systems. Expensive Growth Does.

By LUCIEN NEWTON

As Brazil's markets react to political uncertainty, franchising offers lessons in resilience, disciplined growth and investing through economic turmoil.

On the Monday after Brazil's 2026 presidential runoff, the Ibovespa fell 10% within minutes of the opening bell and the B3 exchange triggered its circuit breaker, halting trading for the first time since the pandemic panic of March 2020. By late morning, Reuters reported losses of more than 15%, while the Brazilian real lost over a tenth of its value against the dollar. The trigger was the re-election of President Luiz Inácio Lula da Silva by 51.79% to 48.21%, an outcome most of the financial market had bet against and one that reopened every fear investors had about the country's fiscal path. Within hours, the same question was being asked in boardrooms, family offices and kitchens across the country: should we stop?

I understand the reflex, and I have watched it play out in every crisis of the 26 years I have spent structuring and expanding businesses in Brazil and Latin America. Investment is an act of confidence in the future, and confidence is the first thing to disappear when politics threatens predictability. But financial markets have something the real economy does not. They have a button that stops everything when panic takes over. That same Monday, the bakery on the corner opened at six. The physiotherapy clinic saw its seven o'clock patients. The language school held classes and the laundromat took in shirts. None of those businesses was suspended for thirty minutes so its owner could breathe and reconsider. Their customers still needed to eat, heal, learn and look presentable on Tuesday.

That distinction matters, because it explains a pattern that international franchisors and investors tend to underestimate. In Brazil, franchising has come closer to crisis immunity than any other model I know in the real economy. The evidence is not anecdotal. In 2015 and 2016, Brazil went through the deepest recession in its modern history, with GDP shrinking two years in a row and unemployment soaring. According to the Brazilian Franchising Association (ABF), franchise revenue grew 8.3% in each of those years, reaching BRL 151 billion in 2016, while the number of units in operation kept rising. Inflation ate most of the gain in 2015, but in 2016 the sector grew in real terms while the wider economy contracted. The only genuine setback came in 2020, when doors were closed by decree. Even then the rebound was fast, with second quarter revenue in 2021 up 48.4% year on year, and by 2025 the sector had passed BRL 300 billion in annual revenue. In the second quarter of 2026, months before the election shock, it was still growing at 9.3%, in an environment the ABF itself described as one of high interest rates, tight credit and indebted households.

Why does the model hold up like this? I see three reasons, and only the last one is truly specific to franchising. First, Brazilian franchising has spread into the routines of daily life: food, health, education, personal care, cleaning and maintenance. These markets feel a drop in income, but they do not vanish. Consumers trade down, delay, negotiate, and keep buying. Second, diversity spreads the shock. A food network, a tutoring network and a dental network do not get hit at the same time or in the same way, and the system as a whole absorbs what would sink an isolated segment. Third, and most underrated, is shared intelligence. When a crisis hits, the franchisee is not alone trying to guess what to do next. There is a franchisor looking at the numbers of dozens or hundreds of units, spotting what works in one city and taking it to the others, renegotiating with suppliers on behalf of the entire network. That is precisely how the ABF explained the sector's performance in 2016: reorganized networks, scale gains and collective bargaining power. An independent business owner faces a recession with one head. A franchisee faces it with the head of a whole system.

Economists have a name for what happens when uncertainty spikes. In a widely cited 2009 paper in Econometrica, Stanford economist Nicholas Bloom showed that uncertainty shocks make firms freeze hiring and investment simultaneously, a "wait and see" pause followed by a rebound once the fog lifts. Projects do not become worse overnight. Everyone simply decides to wait at the same time. Nearly ninety years earlier, Keynes was already writing about the animal spirits that drive investment beyond pure calculation. When those spirits collapse together, economies stall out of fear rather than lack of opportunity, and the companies that can tell the two apart usually come out ahead. A 2010 Harvard Business Review study by Ranjay Gulati, Nitin Nohria and Franz Wohlgezogen, covering almost 4,700 public companies across three U.S. recessions, found that only about 9% emerged outperforming their rivals. The winners were neither the deepest cutters nor the boldest spenders. They cut costs where it created efficiency and kept investing in markets, people and assets that would matter later.

This is where franchising offers something every expansion strategy should study, in Brazil or anywhere else rates are high. In an environment of expensive capital, the way a company finances its growth can matter more than the growth plan itself. A brand that expands only through company-owned units must fund real estate, build-outs, equipment, inventory, working capital and staff at every new address, and it carries every operational risk alone. When borrowing costs jump, a business that is excellent at operations can be destroyed by the financing cost of its own expansion. I have seen it happen more than once, and it is painful precisely because the problem was never the product, the customer or the team. It was the architecture of growth. Franchising changes that architecture. The franchisee invests in and runs the unit, while the franchisor concentrates on what only it can do well: brand, technology, knowledge transfer, market intelligence, support and control. It is not free money, and anyone who sells it that way is lying. Building a real franchisor demands serious investment and a permanent responsibility for the health of every unit. But carrying the full weight of expansion on your own balance sheet is very different from building a system that grows with capital distributed across many owner operators who know their streets better than any regional manager ever will.

The protection, however, belongs to franchising done well, not to any contract with a logo on it. Inside the sector's aggregate revenue there are networks thriving and networks bleeding quietly. A franchisor that sells units and fails to support them offers investors none of the shelter that justifies the model, and a poorly sized unit can fail under a famous brand. This is the core of what I have called Franchising 4.0: the quality of a network is measured not by how many units it opens, but by the economic health of the units it can sustain. That means integrated sales data, unit level profitability tracked almost in real time, early warning on underperformance and support that actually works. In tighter years, networks that keep chasing signed contracts will discover that growth can turn into liability as easily as it turns into equity.

So what should franchisors and investors outside Brazil take from a frozen trading screen in São Paulo? That the next decade is likely to punish growth financed by expensive debt and reward growth financed by distributed ownership and disciplined systems. That a political shock tells you a great deal about sentiment and very little about whether people will keep eating, learning and taking care of themselves. And that no ten year business decision should be made on the strength of one bad morning on the exchange. The market can stop when panic takes hold, and it is right to do so. Entrepreneurs cannot afford to make fear their only strategy. Brazilian franchising did not stop in 2015, did not stop in 2016, came back stronger after 2020, and I do not expect it to stop now, because the counter is still open, the customer is still walking in, and a well built network knows exactly how to serve them.