The Top 25 Worst State Economies for Franchising in 2023

For franchisors, understanding regional economic patterns and forecasts is integral to developing informed growth strategies and predicting the success of their franchisees. Perhaps even more important than understanding which states are thriving is understanding which states are struggling. This article explores the 25 states that are currently less conducive to franchising, as determined by ALEC-Laffer's 16th annual "Rich States, Poor States" Economic Competitiveness Index.

This comprehensive index provides a detailed economic forecast for each state based on 15 essential economic policy factors, which have historically influenced state competitiveness and growth. The forecast helps identify states with less robust economies, potentially hindering brand success in the next decade.

ALEC-Laffer's report provides two crucial rankings: economic performance and economic outlook. The first measures a state's performance over the past decade, while the latter predicts future performance based on the current status of 15 state-policy factors. In general, the report indicates that states with lower taxes and spending typically experience higher growth rates.

For example, in a state like New York, an opportunity for franchise growth may not be the most promising. Why? Compare it to Utah. New York’s personal income tax progressivity is nearly four times higher than Utah’s — the state with the best prospective economic outlook. Also, New York’s top marginal corporate tax rates are 18.28% compared to Utah’s 4.85%.

Here are the other 24 states, ranked from worst to best, that present greater challenges for franchising, based on the Economic Competitiveness Index:

1. New York
2. Vermont
3. Minnesota
4. New Jersey
5. Illinois
6. California
7. Maine
8. Oregon
9. Hawaii
10. Maryland
11. Rhode Island
12. Connecticut
13. New Mexico
14. Massachusetts
15. Nebraska
16. Pennsylvania
17. Washington
18. Montana
19. Iowa
20. Missouri
21. Kansas
22. Delaware
23. West Virginia
24. Kentucky
25. Louisiana

Despite the ranking, aspiring entrepreneurs should not be deterred from investing in a franchise. If market conditions are favorable and a brand addresses a need in that market, franchisees can still thrive and grow their businesses. However, entrepreneurs in states with lower economic outlook rankings might consider franchising opportunities with lower entry costs.

For franchise owners and potential investors, the data provided by ALEC-Laffer’s 16th annual “Rich States, Poor States” Economic Competitiveness Index provides crucial insights. However, even in states with lower economic outlooks, the right business strategies and understanding of market needs can lead to successful franchising opportunities anyway.