Franchising growth could fall to lowest rate in four years amid election year uncertainty

Small Business

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America’s franchisees are poised for another year of growth in 2020 as the U.S. economy chugs along, bolstered by a strong consumer. But facing an election year and a historically tight jobs market, franchise establishment growth is slowing to its lowest rate in the past four years.

The International Franchise Association’s Franchise Business Economic Outlook for 2020 projects the number of franchised business in the U.S. will increase by 1.5% to a total of 785,316 — adding 232,000 jobs this year to reach 8.6 million employees. This is the tenth year in a row of establishment growth.

Despite the sunny outlook, the study done by FRANdata, expects “steady but slowing growth” in the year ahead. The expected increase in the number of franchised establishments nationwide is 1.5%, the slowest pace since 2016. Still, the GDP contribution by the franchising industry is expected to grow by 4.6% to nearly $495 billion.

“We see industry growth continuing to ride momentum and market growth in 2020 despite broader uncertainty in the rest of the economy, so there’s a slight plateau compared to other years,” said Matthew Haller, senior vice president of government relations and public affairs for the IFA, the industry’s largest franchising association. “Anytime you get into the year before or of an election, there’s some hesitation about investment.”

The types of businesses seeing the most growth are those in personal services, which includes health and fitness, childcare and beauty-related services, up 4.7%, as well as quick- and full-service restaurants, both up over 1% compared to 2019, thanks to a boost in disposable income in recent years, Haller said.

But finding and keeping workers on board in this labor market is a challenge for the franchising community, even as low-wage workers are making more money. More companies are offering higher salaries and benefits to workers — a trend that will likely continue, the group said. “Job-hopping” is a trend that has emerged as workers seek better wages.

“It’s consistently one of the top issues for franchise owners and brands who are trying to support franchisee growth,” Haller said. “Franchises offer typically entry-level opportunities, and that is where we have seen the most increases in wage growth over the last few years. It’s good, but also means that franchisees are competing aggressively to keep labor.”

Here are the top 10 states for projected franchise growth in establishments and employment:

  1. Texas
  2. Colorado
  3. Arkansas
  4. Florida
  5. Idaho
  6. Tennessee
  7. Georgia
  8. North Carolina
  9. South Carolina
  10. Nevada

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