Franchising Expected To Have Another Growth Year

Franchising Expected To Have Another Growth Year

Franchise businesses are expected to grow and create more jobs at a faster pace than the rest of the economy in 2015 for the fifth consecutive year, according to "The Franchise Business Economic Outlook: 2015" released today by the International Franchise Association (IFA) Educational Foundation and IHS Economics.

"Franchising is an American success story. Independently-owned and operated local franchise businesses are growing faster, creating more jobs at a quicker pace and producing higher sales growth than other businesses. Franchising is a vital engine of economic expansion in the United States and 2015 looks to be another strong year for franchise businesses," said IFA President & CEO Steve Caldeira.

But Caldeira added a word of caution about the franchise outlook. Federal intervention, specifically by the National Labor Relations Board, could deflate the growth projections significantly.

"Last month, the National Labor Relations Board moved to upend decades of law and practice by issuing a complaint against McDonald's saying that it should be considered a 'joint employer' with its franchisees. The entire business model of franchising is endangered by this ill-conceived complaint," he said. "Hundreds of thousands of franchisees must now operate not knowing whether they should believe what their contracts clearly state, that they are in charge of their own work place practices, including setting wages and hours, or that the corporations from which they license their trademarks are also responsible for those things. The ruling could put the brakes on what looks like a banner year of accelerated growth and job creation in the franchise sector."

IFA members are very worried about the NLRB complaint. The IFA Franchise Business Leader Survey shows that 97 percent of respondents believe that the joint-employer ruling, were it to take effect, would have a negative impact on their business, with 82 percent saying the impact would be "significant."

The Franchise Business Leader Survey also reveals concern about the enactment of discriminatory increases in the minimum wage. More than 85 percent of franchisor and franchisee members believe that recent efforts by some cities and states to increase the minimum wage will negatively impact their business. In addition, more than two-thirds of franchisors and 85 percent of franchisees reported that their businesses have already been "negatively impacted" by the Affordable Care Act.

"The business model for franchising is under assault," said Matthew Patinkin, a franchise owner of Auntie Anne's Pretzel shops. "First, the complaint by the general counsel at the National Labor Relations Board leaves franchise business owners like me uncertain and very concerned about the future. The complaint targets McDonald's, but all other franchises are also at risk. I'm also concerned that Obamacare has changed the definition of full time to 30 hours per week. This is an irrational requirement of the Affordable Care Act, and will cause owners like me to reduce the hours of some of our workers. Rather than helping employees, this change will make life more difficult and more costly for lots of hardworking families."

Key findings from the business outlook released today include:

  • Franchise businesses will add 247,000 new direct jobs this year, a 2.9 percent increase to 8.8 million direct jobs, over last year. That is on top of the 235,000 franchise jobs that were added in 2014.
  • The number of franchise establishments will grow this year by 12,111, or 1.6 percent, to 781,794.
  • Economic output from franchise businesses is estimated to increase by 5.4 percent over last year to $889 billion.
  • The gross domestic product of the franchise sector is projected to rise by 5.1 percent this year, which is faster than the 4.9 percent GDP increase forecasted for the economy as a whole. The franchise sector will contribute about 3 percent of the U.S. GDP in 2015.
  • The IFA Franchise Business Index - which is a mixture of employment, sales and credit conditions - also rose smartly, especially at the end of last year. In November, the index was up 3.1 percent compared to November 2013, the biggest year-over-year gain since the start of the Great Recession in 2008.
  • The outlook for growth among the different types of franchises will differ, with quick service restaurants ranking first and ranking second in terms of increased employment.

"With continued job gains, consumer spending will accelerate creating the conditions for another strong year of growth for franchise businesses," said IHS Economics Senior Economist Jim Gillula.

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