What Arizona’s Economic Outlook Means for Franchisors

If you’re a franchisor looking to develop your business in Arizona, you’ll want to consider the state’s policy variables and growth rates when scaling your plans.

By Sarah Baumann1851 Franchise Contributor

7:07AM • 10/26/20

This summer, ALEC-Laffer published its annual Economic Competitiveness Rankings, which forecasts a state’s current standing within 15 state policy variables. The report features two different rankings: Economic Outlook — a forecast based on a state’s current standing in 15 state policy variables — and Economic Performance — a retrospective measure based on a state’s performance over the past 10 years. The state of Arizona has consistently performed well in these rankings, and this year appears at No. 13 for performance and No. 10 for outlook.

The State

Like nearly every other state in the U.S., Arizona issued state-at-home orders at the beginning of the pandemic. As one of the first states to reopen, the immediate economic gains were short-lived, and the number of COVID-19 cases surged. A report as recent as late August indicated that the state’s unemployment rate had climbed to 10.6 percent, which surpassed the national average at the time of 10.2 percent.

The hospitality and construction industries were the hardest hit in the Sunshine State. While hospitality lost 16,200 jobs in July, construction lost 1,200. A recent Yelp report also indicated that, when considering closures per 1,000 for each state, Arizona was one of the five states hit the hardest during the crisis. Some good news for Arizona, however, was that the education, trade, and professional service sectors combined added 1,400 jobs to the economy.

The Data

What does this mean for Arizona’s economy? To start with the Economic Performance report, the index shows that within the past ten years, Arizona has only been outperformed by 12 other state economies. The performance index is based broadly on a state’s performance within State Gross Domestic Product, Absolute Domestic Migration and Non-Farm Payroll Employment. Although Arizona only saw a 34.3 percent increase in Gross Domestic Product, the state is a leader in Absolute Domestic Migration, with an increase in population of 385,647, and an increase in Non-Farm Payroll Employment of 12.8 percent.

The Economic Outlook tells a similar story about the Arizona economy and ranked the state at No. 10. The ranking is based on a state’s current standing in 15 state policy variables. Each of these factors, ranging from sales tax Burden to state minimum wage, is influenced directly by state lawmakers through the legislative process. Of the variables, the state was ranked lowest in minimum wage at No. 45 and sales tax burden at No. 43. However, in all other aspects, the state made a strong showing.

The report indicates that, generally speaking, states that spend and tax less experience higher growth rates than states that spend and tax more. While this is an important finding for entrepreneurs looking to start their own business, it shouldn’t discourage them from investing in the franchise of their dreams if they're in a market with a slower growth rate. For Arizona, this means the state is ahead of the majority of state economies and has room to grow economically.

Franchise Growth Plans

So what should franchisors do with this information? Though most franchisors take a shotgun approach — meaning wherever a prospect franchisee inquires, the franchisor will typically entertain that marketplace — the strategy of looking at these overall policies can help them scale their business at a more efficient rate. With that said, the findings within the report should not be the deciding measure for franchisors, but they should play a role in the decision.

Big Blue Swim School*

Current units in state: 0
Growth capacity in state: 15
Total jobs created at max growth capacity: 525

Big Blue Swim School’s Chief Development Officer Scott Thompson said Arizona is one of the most lucrative markets for the swim lessons brand due to its warm climate.

“Our real estate team has identified some amazing markets,” said Thompson. “There are a lot of swimming pools in Phoenix, and the experience of enjoying the pool for families in the market is in demand. Because of the number of pools in the area, swim lessons are top-of-mind to ensure the safety of their children. That means our brand will thrive in the region as we provide a necessary service to the families in and around Phoenix Metro.”

**Checkers* & Rally’s**

Current units in state: 4
Growth capacity in state: 102
Total jobs created at max growth capacity: 2550

Checkers & Rally’s Director of Franchise Development Robert Bhagwandat said that, at present, their model is attractive to potential franchisees because it has proven to be pandemic-proof.

"The Checkers & Rally's franchise opportunity has proven to be a strong and resilient investment throughout the COVID-19 pandemic,” said Bhagwandat. “Our drive-thru model and well-integrated delivery system has allowed our brand to thrive during a difficult time for many restaurant brands, and we have experienced minimal disruption; new restaurant openings with record sales; a lift in both drive-thru and delivery sales; and several new franchisee signings. There are a lot of great things in the works and we're looking forward to partnering with strong franchise owners as we continue to grow our brand."

MOOYAH Burgers, Fries & Shakes*

Current units in state: 0
Growth capacity in state: 9
Total jobs created at max growth capacity: 225

President of MOOYAH Burgers, Fries & Shakes Tony Darden told 1851 that his team looks at all aspects of a state’s economic standing before moving forward with expansion.

“When looking to expand, at a macro level we look at population growth, the health of the economy, supply chain availability and the state of both the residential and commercial real estate markets,” said Darden. “Once through that we then take a more granular approach in terms of understanding the workforce, density of the population and the number and competitive seats.”