the state of the franchise economy in 2013

7/29/2019 The State of the Franchise Economy in 2013

1/13

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The State Of The Franchise Economy In 2013

Growth Forecasts, Business Sentiment, And Top Policy

Concerns For The Franchise Sector


2/13

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.


3/13

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)


4/13

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.


5/13

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.


6/13

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


7/13

Franchise Sales Is Franchisors Top Concern In

Front Of Healthcare And Government Regulation


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.


8/13

Franchisees Economic And Business Outlook For 2014

Is Worse Than It Was For 2013


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

-10


9/13

Government Regulation And Health Care Costs Are Top

Concerns For Franchisees


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


10/13

Other Key Findings On Credit Concerns, Health Costs,

Tax And Immigration Reform


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.


11/13

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


12/13

Appendix I: IHS Global Methodology

11

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).


13/13

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.

the state of the franchise economy in 2013

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