Has economic downturn affected Franchising?

26th Sep 2016

Despite worries of an economic downturn, one sector is poised for another year of solid growth in 2016, according to one study. 

Bolstered by trends including acceleration in business spending, the franchise industry is set to grow by 1.7 percent in 2016, according to the study by the International Franchise Association. The annual outlook follows a stronger-than-expected 2015, which saw an estimated 1.7 percent growth, according to the association's Franchise Business Economic Outlook for 2016 that was prepared by IHS Economics.

The 1.7 percent growth forecast for this year will bring the total number of U.S. franchises to 795,932.


Among franchises, hiring and job creation trends are also expected to be strong. The IFA forecasts employment increases of 3.1 percent to 9.1 million franchise jobs, up from last year's 8.8 million jobs. Plus, total GDP generated by the franchise industry will reach $552 billion, up from $523 billion in 2015, it said. The index has shown growth every year since 2010.

"These [franchise] companies have cultures that tend to grow and rise because they meet consumer needs in various spaces, whether it's dog walking or hotels you prefer to stay at," said IFA President and CEO Robert Cresanti. "As a function of that, it usually scales up."

While potential risks include flat government spending, franchises could benefit as investors looks for options outside the oil patch, with crude oil prices plunging. 

"The fundamentals of consumer spending are positive and business investment outside of the oil industry is beginning to accelerate," the report said. "By most measures, the franchise sector will continue to grow at rates that exceed the economy-wide growth of industries, where franchises are concentrated." 

Franchisee Robert Dorfman is a believer in the franchise model. He's gearing up to open his second World of Beer Location in Ashburn, Virginia. Before his push into the beer business, he owned 35 Five Guys Burgers and Fries locations in three states for seven years. 

"I like the model," Dorfman said. "Franchising gives people the opportunity to start off small and build a business, and it provides the kind of entrepreneurial spirit I enjoy."

Despite his sunny outlook, Dorfman, like many franchise owners, is wary of speed bumps, including rising wages and the Affordable Care Act. This year, businesses with as few as 50 full-time employees face fines for not offering workers adequate coverage. 

"We don't yet have 50 full-time employees, but as we continue to grow, the ACA has a serious financial impact on me," Dorfman said. "As we look to maintain and minimize costs, it's a balancing act between full-time and salary and hourly" workers, he said. 

Also on the minds of franchisees is a decision on joint-employer status from the National Labor Relations Board in a case that involves McDonalds 

If the board ultimately rules McDonald's is a joint employer, corporations would be held accountable for what happens at individual chain locations. 

Cresanti said some business owners are already adjusting their business models in advance of any possible changes, which ultimately costs businesses more.