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Franchise Industry Optimistic Despite Regulatory Uncertainty

According to the International Franchise Association’s 2012 Member Survey, franchise executivesare slightly more optimistic about the coming year than they were in August 2011, despite significant continued concerns about credit access, health care reform and government regulation.
Access to Credit
Thirty-eight percent of franchisors and one-half of franchisees report noticing a “slight” improvement in access to credit, which indicates progress over the last measurement of credit access in August 2011. Forty-one percent of franchisors said that credit access for prospects and franchisees has not improved in the past six months. One-third of franchisees say their own access to credit has not improved.

Bracing for the Impact of Health Care Law
Members are also bracing for the impact of the Patient Protection and Affordable Care Act or PPACA. Most franchise executives expect the law to have a very negative impact on their businesses. One franchise executive said, “forcing companies to provide health care benefits without regard to how it impacts the bottom line will cause small businesses to reduce staff or close doors.” The sentiment was echoed by other executives, one of whom said the PPACA will “cut profits almost in half.”
Sixty-seven percent of both franchisees and franchisors and 70 percent of IFA volunteer leaders expect the PPACA to have a negative or very negative impact on their businesses. Still, since August 2011 there has been a slight increase in the number of members expecting a positive impact from the law. Six percent of franchisors, 17 percent of franchisees, 16 percent of suppliers, and 8 percent of volunteer leaders expect the law to have a positive or very positive impact on their businesses.
Still, many members remain unsure of how the PPACA will affect them. In fact, 18 percent of franchisors, 8 percent of franchisees, 16 percent of suppliers and 15 percent of volunteer leaders report that they don’t yet know what to expect from the law.

Energy Costs
Members are also feeling the stress of higher energy costs. Sixty-four percent of franchisors, 75 percent of franchisees, 32 percent of suppliers and 54 percent of volunteer leaders report their businesses are negatively or very negatively impacted by the increase in gas prices.
Tax Reform
Many members expressed serious concerns about tax reform generally. One member explained “the proposed and actual tax increases combined with anticipated health care reform and coming out of the worst economy since the depression has made it very difficult to grow and maintain a business.”

Business Conditions
As compared to 2011, more franchisors and fewer franchisees are experiencing good or very good business conditions.
Nevertheless, slightly more franchisors and franchisees think business conditions will improve over the next year compared to last measurement. Fifty-four percent of franchisors, 64 percent of suppliers and 58 percent of volunteer leaders expect business conditions to be better 12 months from now. Most franchisees (50 percent) expect conditions to stay the same. One-third expect conditions to improve and 17 percent expect conditions to worsen.
Despite the regulatory hurdles in front of franchise businesses, franchise executives expect unit, same-store sales and employment growth over the coming year.
Fifty-four percent of franchisors expect the number of franchisee-owned units to increase over the next six to 12 months. Of those, 60 percent of franchisors anticipate a significant increase (defined as 6 percent or more) in the number of franchisee-owned units.
IFA asked all members whether they planned to increase hiring over the next six to 12 months. Fifty-two percent of suppliers, 58 percent of franchisees and 54 percent of franchisors expect to increase hiring. Most members expect a moderate hiring increase. Specifically, 60 percent of franchisors, 43 percent of franchisees, and 54 percent of suppliers expect an increase of less than six percent. The rest expect a significant increase, defined as 6 percent or more.
The good news continues on the same-store sales front. Eighty-four percent of franchisors and 58 percent of franchisees expect same-store sales to increase. Fifteen percent of franchisors and one-third of franchisees expect same-store sales to remain the same. Of those expecting an increase in same-store sales, most expect a moderate increase. Fifty-six percent of franchisors and 57 percent of franchisees anticipate the increase will be less than six percent.
In sum, attitudes for the next year are slightly more optimistic in terms of overall business conditions, unit growth, and improved same-store sales despite the uncertainty caused by the Patient Protection and Affordable Care Act, restricted credit access and a challenging regulatory environment. 

Blaire Jones is research project manager for the International Franchise Association. She can be reached at 202-662-0796 or bjones@franchise.org.

 

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