Franchise Business Growth Outpaces the Economy in 2014
Franchise sector has continued a steady climb out of the depths of the recession of 2008 to 2009.
Franchise businesses will grow faster and create more jobs than other businesses in the U.S. economy in 2014. The report, Franchise Business Economic Outlook: 2014, prepared by IHS Global Insight for the IFA Educational Foundation, forecasts growth in establishments, output and contributions to U.S. gross domestic product will exceed that of 2013.
“Throughout the recession and tepid, uneven economic recovery, the strength and entrepreneurship of the franchise sector has been a consistent job creator for the U.S. economy,” said IFA Pres. & CEO Steve Caldeira, CFE, during a Jan. 13 press conference at which the report was released.
During the conference, which focused on the need for comprehensive tax reform and pro-growth policies, Caldeira urged Congress to “tackle tax reform that addresses both corporate and individual rates so franchise small-business owners can invest in building more units and creating more jobs.”
U.S. House Ways and Means Committee Chairman Dave Camp (R-Mich.), who also spoke during the conference, said, “Fixing our broken tax code so that it is simpler and fairer is critical to achieving those goals and can provide the certainty and growth opportunities that job-creating industries like franchising need.”
A survey conducted of franchisors and franchisees last year by BDO, an accounting and consulting organization, found that 69 percent would support lower corporate and individual tax rates even if some deductions are lost. IFA’s Franchise Business Leader Survey conducted last fall found that 90 percent of franchisors and franchisees want a simplified tax code, one with lower individual and corporate tax rates.
Despite the headwinds of government shutdowns, Obamacare and other federal policies that have constrained growth, the franchise sector has continued a steady climb out of the depths of the recession in 2008-2009. Key findings from the economic outlook report include:
Franchises are expected to add nearly 200,000 new jobs in 2014. The pace of employment gains is expected to remain steady compared to 2013, but will continue to outpace total private-sector employment growth by 0.3 percent.
The number of franchise businesses opened in 2014 is expected to rise by 12,915 in 2014, bringing total establishments to 770,368. The 2014 establishment growth rate is expected to rise to 1.7 percent from 1.4 percent in 2013. This will continue to be in line with the growth of overall business formation across the economy.
Within the franchise sector, business services, commercial and residential services, and quick service restaurants are expected to be drivers of job creation of 2014. With the fastest growth rate, business services is expected to add 35,109 franchise jobs in 2014, while quick service restaurants, the largest sector in franchising, is expected to create 75,596 new jobs.
In the report, IHS Global Insight Senior Economist Jim Gillula identified a number of factors that support an improved forecast for the U.S. economy and for the franchise industry in 2014, including, “reduced fiscal drag, improved consumer spending, continued gains in the housing market and strong export growth.” The report shows that while these forecasts have improved, they are still below pre-recession growth rates.
Members’ Outlook Mirrors Economic Forecast
IFA members’ outlook for the year closely mirrors the forecast for steady but modest increases in establishments, jobs and economic output.
IFA’s Annual Franchise Business Leader Survey, conducted last fall, found that 50 percent of franchisor members believe the U.S. economy will be “about the same in 2014,” while 40 percent believe “the economy will improve” in the year ahead. Franchisors are more optimistic about their business prospects for 2014, with 76 percent saying they expect improvements. Franchisees were somewhat less optimistic: 46 percent said the U.S. economy “will be about the same” and only 15 percent believe “the economy will improve” in the year ahead. Thirty-one percent of franchisee members said they expect their own business “to be better in the year ahead.”
In the annual survey, both franchisor and franchisee members expressed a host of concerns about issues impacting their businesses.
Top Concerns Among Franchisor Members
1. Same Store Sales
2. Health Care/ACA
3. Government Regulations
5. Financing/Capital Access
The Top Concerns Among Franchisee Members
1. Health Care/ACA
2. Government Regulations
4. Labor Issues/Minimum Wage
5. Financing/Capital Access
For the full report, Franchise Business Economic Outlook for 2014 and other research visit www.franchiseeconomy.com.
John Reynolds, CFE, is president of the International Franchise Association Educational Foundation. Find him at fransocial.franchise.org.