the state of the franchise economy in 2013
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7/29/2019 The State of the Franchise Economy in 2013
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Celebrating 50 years of excellence, education and advocacy, IFA protects, enhances andpromotes 825,000 franchise businesses across 300 business lines, which support nearly 18million jobs and generate $2.1 trillion of economic output to the U.S. economy.
The State Of The Franchise Economy In 2013
Growth Forecasts, Business Sentiment, And Top Policy
Concerns For The Franchise Sector
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Executive Summary
1
This deck highlights key findings from IHS Globals Third Quarter Franchise Forecast for 2013 and IFAs Annual
Franchise Business Leader Survey (FBLS) of 144 IFA members. Highlights include:
In the past year and a half, the franchise sector accounted for roughly 10 percent of all new jobs, bringing
total jobs in the industry to more than 8 million today. In fact, over the past 12 months, the franchise sector
has added 184,000 new jobs in industries such as business and personal services, restaurants, automobile,
education, and manufacturing. Overall, the franchise sector indirectly supports more than 18 million jobs.
The franchise sector is forecasted to grow faster than the broader economy. Economy wide business
formation and job growth is expected to be 0.7 percent and 1.6 percent respectively, compared to 1.4 percent and
1.9 percent in the franchise sector.
While the franchise sector is outgrowing the broader economy and is expected to increase from the post-
recession average in 2013, growth is still expected to remain below pre-recession levels. Job growth from
2001 to 2005 averaged 3.7 percent a year compared to the 1.9 percent forecast for 2013.
Franchisors are more optimistic about the 2014 economy than franchisees. Seventy-six percent of
franchisors expect business to be better in 2014 compared to just 31 percent of franchisees.
The top policy concerns for franchisees are government regulation and healthcare costs. At the sametime, more than 90 percent of franchisees want government to simplify the tax code with lower individual and
corporate tax rates.
Overall, both analyses point to modest growth in the franchise sector for the remainder of the year and into 2014.
However, according to franchisees and franchisors, government can take steps to improve the economic landscape
through tax, healthcare, and immigration reform.
See the appendices for methodologies.
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Currently, The Franchise Sector Accounts For Roughly
10 Percent Of All New Jobs, More Than 8 Million Total
Source: ADP 2
12
27
19
31
1211
24
67
1415
6
0
5
10
15
20
25
30
35
Sep
12
Jul
13
Oct
12
Aug
12
Jobs
(000s)
Nov
12
Dec
12
Jan
13
Feb
13
Mar
13
Apr
13
May
13
Jun
13
Current Franchise Sector
Economic Footprint
Totals over 8.2 million
jobs in more than 30
business lines,
approximately the size of
the financial services
sector
Including indirect jobs the
franchise industry
supports 18 million total
jobs.
184,000 new jobs over
the past year
Franchises have created
nearly 10 percent of all
new jobs
New Private Franchise Jobs (000s)
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The Q3 Forecast Projects Franchises To Grow Faster
Than The Broader Economy In 2013
Source: IHS Global 3
1.6
0.7
1.9
1.4
0.0
0.5
1.0
1.5
2.0
Business Formation Jobs
+0.3
Percent(%)
+0.7
Economy Wide
Franchises
2013 Forecast of Growth in Business Formation and Jobs
Economy Wide and in Franchises
Private sector job growth
is expected to equal
franchises in 2013, butgovernment job cuts will
reduce overall job growth.
Real estate, business
services, and restaurants
are expected to lead
growth in jobs in 2013 with
direct franchise jobs
expected to reach 8.3
million.
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While Better Than The Post-Recession Average,
Projected 2013 Growth Is Below Pre-Recession Levels
Source: IHS Global, Pre-recession average is 2001-2005, Post-recession average is 2010-2013 4
3.7
5.6
9.7
1.3
4.3
0.8
1.9
1.4
4.3
0
1
2
3
4
5
6
7
8
9
10
Percent(%)
0.0
+0.6+0.6
JobsEstablishmentsEconomic Output
2013 Q3 Forecast
Post-Recession
Pre-RecessionFranchise Growth Rates For Output, Establishments, And Jobs
Job and establishment growth
rates are expected to
increase in 2013, but growth
in economic output has not
picked up.
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Franchisors Are More Optimistic About The 2014
Economy And Business Prospects Than In 2013
Source: Franchise Business Leader Survey 5
29
3734
11
50
39
0
5
10
15
20
25
30
35
40
45
50
-18
+13
+5
Percent(%)
Better About the Same Worse
2013 2014View Of 2014 EconomyCompared To 2013
Business Prospects
76 percent expect
business to be better
in 2014.
89 percent expect an
increase in sales
compared to 78
percent a year ago
56 percent plan tohire in 2014
compared to 48
percent a year ago
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Franchise Sales Is Franchisors Top Concern In
Front Of Healthcare And Government Regulation
Source: Franchise Business Leader Survey 6
19
19
20
13
13
17
0 5 10 15 20
Franchise Sales
Health Care/ACA
Government Regulations
Percent (%)
Underperforming
Franchises
Competition
Financing/
Capital Access
Franchisors Top Concerns
While franchisors are
more optimistic about
2014 than 2013, they
still have both business
and regulatory
concerns.Franchise sales top the
list, but capital access
is still a concern for
some.
Meanwhile, healthcare
reform and government
regulation are
significant concerns
for franchisors going
forward.
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Franchisees Economic And Business Outlook For 2014
Is Worse Than It Was For 2013
Source: Franchise Business Leader Survey 7
36
39
25
39
46
15
0
5
10
15
20
25
30
35
40
45
50
Percent(%)
+3
+7
WorseAbout the SameBetter
20142013View Of 2014 Economy ComparedTo 2013
Business Prospects
Only 31 percent
expect business to
be better in 2014
More than 50 percent
plan to hire in 2014
However, unlike
franchisors, 54
percent plan toreduce full-time staff
due to the ACA
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Government Regulation And Health Care Costs Are Top
Concerns For Franchisees
Source: Franchise Business Leader Survey 8
0 2 4 6 8 10 12 14 16 18
11.7%
Percent(%)
10.3%
10.3%
Government
Regulation
Health Care/ACA
Taxes
17.6%
17.6%
16.2%
Labor Issues/
Minimum Wage
Financing
16.2%
Competition
Labor Shortages
Franchisees Top Concerns
Government regulations,
the complicated tax code,
and mandatory health care
will bring a halt to the smallbusinesses ofAmerica.
We need lower taxes and
less regulation to unleash
the economic engine of
small business.
Quotes From Participants
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Other Key Findings On Credit Concerns, Health Costs,
Tax And Immigration Reform
Source: Franchise Business Leader Survey 9
There is overwhelming support for tax reform throughout the franchise
industry. More than 90 percent of franchisors and franchisees want to see a
simplified tax code with lower individual and corporate tax rates.
Franchisees are very supportive of immigration reform. Seventy-six percent of
franchisees, who need the labor on the ground, say that they would support
immigration reform that creates a legal pathway to hire foreign-born workers.
The ACA Is expected to raise costs. More than 66 percent of franchisors and 92
percent of franchisees believe that the Affordable Care Act will increase the cost of
their business operations.
Credit concerns still constrain franchise growth. Sixty-eight percent of
franchisors and 42 percent of franchisees report that access to credit continues to
limit their ability to expand by opening new units or expanding existing ones.
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Learn more about the IHS Third Quarter Forecast and the Franchise
Business Leader Survey, and other IFA research and data products byvisiting:
www.FranchiseEconomy.com
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Appendix I: IHS Global Methodology
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The statistics in this report were derived from various published sources as well as IHS Global Insight propriety databases. The primary source for the
report was the 2007 Economic Census Franchise Report. This report provides U.S. estimates of establishments, employment, and annual payroll and
output from business with paid employees by detailed sector for 2007. Data were aggregated to the 10 Business Format Lines.
The 2007 Economic Census only covers businesses with paid employees; the data were integrated with other data sources to include franchisebusinesses without paid employees. Other data sources were:
The 2007 Survey of Business Owners The U.S. Census Bureau publishes the 2007 Survey of Business Owners (SBO). From this data source wewere able to determine the number of franchised businesses for businesses without paid employees.
2007 Nonemployer StatisticsThe U.S. Census Bureau publishes the 2007 Nonemployer Statistics (NES). NES includes the number establishmentsand total annual receipts by industry of businesses without paid employees that are subject to federal income tax. Most often, nonemployers are self-
employed individuals. IHS Global Insight determined the total number of businesses without paid employees and combined it with the SBO data to
derive franchise businesses without paid employees and the number of independent contractors working out of franchised establishments owned byothers.
IHS Global Insights Business Market Insights (BMI) This is a database that is based on the Census Bureau'sCounty Business Patterns. It containsinformation on establishments, employees, and sales at the country level at six-digitNorth American Industry Classification System (NAICS). The data
were integrated with the SBO to determine the number of businesses with paid employees in NAICS 55, which was not included in the 2007 EconomicCensus Franchise Report.
To develop our estimates and forecasts, we reviewed and replicated previous studies done by PWC, which had made estimates of franchise businesses
for 2007-2010. Our estimates were largely in agreement with theirs. We present our revised estimates, which are based on our work with the 2007
Economic Census and more up-to-date data from the Survey of Business Owners and Nonemployer Statistics.
We also acquired and reviewed data from Dun & Bradstreet on the number of franchise businesses at year-end 2009, 2010 and 2011. These data did not
cover all franchise establishments, but in some cases could be used to assess recent growth in the number of franchise establishments.
IHS Global Insight estimated econometric models to create forecasts for establishments, employment, and output of each of the 10 business lines. The
models include both macroeconomic (credit availability) and industry-specific variables, using a nested modeling approach (i.e., franchise establishment
formation affects employment requirements, which further influences output forecasts).
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Appendix II: FBLS Methodology
12
More than 1,200 IFA members were invited to participate via email in the onlinesurvey, 114 franchisor and 30 franchisee members answered some part of the
survey form. The email survey was conducted in late August/early September,
2013.
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