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State of Franchising
The franchise industry saw tremendous growth in 2015, but there will still be some hurdles in 2016.
The franchise industry is as strong as ever—the IFA’s Franchise Business Economic Outlook for 2016 found that the franchise industry is outpacing all other businesses across the economy. But according to FRANdata President and Chief Executive Officer Darrell Johnson, the industry will still face some hurdles along the way.
The report found the gross domestic product (GDP) for the franchise industry is expected to grow 5.6 percent this year, adding $29 billion to the GDP of the overall U.S. economy. This rousing growth is stimulating the economy, but Johnson said it might not feel that way.
“We came out of the last recession in 2009 and we are seven years into a recovery and it doesn’t feel like it” Johnson said. “This is one of the longest recoveries that hasn’t felt like it because it’s such a slow, choppy recovery. It’s a positive one, but it is below what we would normally categorize and come to expect in an economic recovery.”
Because of this meandering recovery, businesses, and franchises in particular, need to change how they declare success.
“When we are in a prolonged period of slow growth it’s more about a battle of market share than it is about a battle about the overall pie expanding and businesses getting their fair share,” Johnson said. “In other words, if the economy is growing at 2 to 2.5 percent over a period of many years, how can you outperform that rate? You can’t find pockets that are growing a lot faster because the whole economy is by and large growing pretty slowly so the only way you can do that is to play for market share.”
Carving out a share of market has its challenges, as new franchises are popping up every day. In the January 2016 issues of Franchising World, FRANdata President of Client Solutions Edith Wiseman and Senior Research Analyst Anya Nowakowski found that on average, two new franchise brands are set up each day. During the first three quarters of 2015, the industry saw 377 new franchises starting.
Johnson also said that franchisees need to strengthen from within to preserve success in 2016, and creating better cohesion between franchisor and franchisee is a start. Franchisors letting franchisees know about shifts in the company, how state and national regulations for franchising are changing and keeping strong lines of communication open are all ways for brands to sustain growth.
There are a few other obstacles the franchise industry will face, including issues in Washington, D.C. In the IFA’s Franchise Business Economic Outlook for 2016, the organization said government regulations like the National Labor Relations Board’s (NLRB) choice to treat franchisors and franchisees as “joint employers” could hamper growth. This, along with the ongoing discussions of minimum wage in 2016 can be a hurdle. In an interview with Franchising World, IFA President and CEO Robert Cresanti said franchises could combat these impediments with grassroots organizing. Cresanti points to the Franchise Action Network (FAN), a group of nearly 9,000 franchise owners working together to create jobs and opportunities for their communities, as a resource to start discussions of change.
“By educating their members of Congress, sending in letters, coming to Washington, D.C. to fight for their businesses, these women and men are the voices of change,” Cresanti said. “It’s an unprecedented time for franchising, but there is power in numbers and it is the collective voices and stories of small business owners that will ultimately make a difference.”
Cresanti said the IFA in 2016 would pinpoint their resources to supporting small businesses and being a voice for the franchise industry.
“IFA’s role in this is to educate members of Congress on the issues affecting local business owners. A big part of that is relying on support of IFA membership to tell their own stories and influence their own colleagues to act on issues that matter to them and their small businesses,” Cresanti told Franchising World. “My vision is that the IFA remains the go-to-source for policy makers, the public and the media about franchising and small business issues.”
Johnson said the franchise model is still sturdy in 2016. He went on to say the main goal for a franchise is to grow, and that is why these businesses continue to thrive.
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