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IFA Leaders Unveil 2013 Economic Outlook For Franchising

Slow and steady wins the race. Such is the adage these days in franchising, or so was the general theme when discussing the prospects for franchise growth, job creation and sales in the year ahead. On Dec. 20, International Franchise Association President and CEO Steve Caldeira, CFE, Choice Hotels President and CEO Steve Joyce and NRD Holdings, LLC President Aziz Hashim (a multi-unit/multi-concept franchisee) joined a gaggle of reporters to unveil The Franchise Business Economic Outlook: 2013, a report prepared for the IFA Educational Foundation by IHS Global Insight. On the call, these franchise industry leaders talked about the continued resiliency of the franchise industry in contributing jobs and growth to the U.S. economy, despite the myriad issues facing franchisors, franchisees and prospective investors.

According to the report, franchise businesses will grow at a slightly slower pace in 2013 than in 2012, yet the industry will continue to outpace growth in other business sectors. According to the forecast, growth will essentially mirror what the industry saw in 2012.

The number of franchise establishments in the United States will increase by 1.4 percent in 2013, just short of the 1.5 percent growth in 2012, from 746,828 to 757,055 (an increase of 10,227).

The number of jobs in franchise establishments will increase 2.0 percent in 2013 (following a gain of 2.1 percent in 2012) from 8.1 million to 8.262 million (an increase of 162,000).

The output of franchise establishments in nominal dollars in 2013 will increase 4.3 percent (following a 4.9 percent increase in 2012) from $769 billion to $802 billion (an increase of $33 billion).

The gross domestic product or GDP of the franchise sector is projected to increase 4.1 percent in 2013 (following a 4.6 percent increase in 2012) from $454 billion to $472 billion (an increase of $18 billion). This is approximately 3.4 percent of U.S. GDP in nominal dollars.

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“While we are pleased the industry continues growing at faster rates than other sectors of the economy, we could be growing much faster, creating more new jobs and businesses, if Washington addressed the tax, spending and regulatory uncertainty plaguing the small-business community in a meaningful way,” said Caldeira. “Franchise businesses emerged from the recession stronger due to the strength of the franchise business model and the strong support of franchisors working with franchisees to sustain profitability. Franchise businesses are now poised to accelerate growth plans, but industry leaders say the lack of confidence in our leaders in Washington to address the fundamental challenges facing our economy is keeping them and prospective investors on the sidelines.”

All 10 business sectors measured in the forecast are expected to see growth in the year ahead, although there are some, such as the lodging sector, that will outpace others. According to Joyce, the business model remains strong and should give franchisors across the board reasons for optimism. “While the 2013 forecast is sobering in the sense that we are not growing at levels we are capable of, I am optimistic for the franchise sector and for the lodging industry and certainly for Choice Hotels given we continue to outpace growth of non-franchised businesses,” said Joyce.

In conjunction with the forecast, IFA released its annual Business Leader Survey, which gauges the top business and policy challenges facing members of the association. Survey results indicate that investing in franchise businesses is still a good option for aspiring entrepreneurs, and franchisors remain generally optimistic about expansion in 2013.

Some 81.3 percent of franchisors say they plan to increase units, with 29 percent saying they plan to increase units by 6 percent or more and 52.3 percent saying they expect a moderate increase in the number of units (less than 6 percent). A small percentage of franchisors (8.4 percent compared to 4.7 percent one year ago) expect to see a decline in units.

However, the survey confirms that franchisors and franchisees remain frustrated with the pace of the economic recovery and the uncertainty of numerous regulatory and public policy challenges. Asked to identify their top issue of concern in 2013 among a range of business and policy challenges, 27 percent of franchisors cite franchise sales and development and 20 percent cite the Affordable Care Act. Among franchisees, the Affordable Care Act was cited by 31 percent as their top concern, followed by taxes (17 percent).

Hashim, who owns 62 franchises in several states in the Southeast under the Domino’s Pizza, Popeye’s and Checkers/Rally’s brands, agreed with the sentiment of both Caldeira and Joyce in predicting slow growth. But he also expressed growing frustration as it relates to the inaction by Washington to address fundamental, long-term problems related to taxes and spending which he believes is holding back development.

“Unless Congress and the president develop tax policy that does not overly burden small businesses, I’m afraid that franchisees across the country will continue to be cautious in our expansion plans,” Hashim said. “Franchisees, by their nature are optimistic and I agree that franchising remains a wonderful way to get into business for yourself. Franchising has been a great avenue for me and my family and I remain optimistic that the industry will continue to grow and prosper. Clarity about our taxes, health care, energy and other small-business issues would go a long way to getting back to the growth trends we should be experiencing.”

These research reports were underwritten by a grant from Jani-King International to the IFA Educational Foundation. ⎯

Matt Haller is vice president, public affairs and chief of staff to the president & CEO. He can be reached at 202-662-0770 or mhaller@franchise.org.

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