What Hawaii’s Economic Outlook Means for Franchisors

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

By Luca Piacentini1851 Franchise Managing Editor

10:10AM • 07/20/23

This month, 1851 is taking an in-depth look at ALEC-Laffer’s 16th annual “Rich States, Poor States” Economic Competitiveness Index and how it can be useful to franchisors as they expand their footprints. The report ranks all 50 states based on two criteria: 1) Economic Outlook, a state’s current standing in 15 state policy variables; 2) Economic Performance, a retrospective measure based on a state’s performance over the past 10 years.

For the state of Hawaii, these rankings reveal a lot about where the state economy is going and where there is opportunity for their economy to grow.

2023 Economic Outlook Ranking: 42
2023 Economic Performance Ranking: 45

The State

Despite the global economic turndown, Hawaii's Department of Business, Economic Development and Tourism (DBEDT) predicts that the current and continuing strength of Hawaii's domestic tourism demand, combined with the gradual return of international visitors, will most likely help it avoid falling into the mild recession expected for the rest of the U.S.

Historically, tourism has been the driving force behind Hawaii’s economy. Following the pandemic-related shutdowns, visits to Big Island, Maui and Kauai have already recovered to 95% of what they were in 2019, DBEDT reports. In the first 10 months of 2022, the state welcomed 7.6 million total tourist arrivals, equivalent to 88.6% of visitor volumes seen during the same period in 2019.

While U.S. economic growth in 2022 is expected to come in at just 0.2% in 2023, Hawaii's growth is expected to register 1.7% for 2023. In 2024, economic growth is expected to grow to 2.1% for the state. Nominal personal income is also estimated to increase by 3.4% in 2023.

Making Sense of the Data

What does this mean for Hawaii’s economy? To start with the Economic Performance report, the index shows that within the past 10 years, Hawaii has been outperformed by 44 other state economies.

The performance index is based broadly on a state’s performance within state gross domestic product (GDP), absolute domestic migration and non-farm payroll employment. Hawaii has lost roughly 92,000 residents, the 37th worst absolute domestic migration ranking in the country, largely due to skyrocketing housing prices pushing Native Hawaiians out of the state.

The Economic Outlook tells another story about Hawaii’s economy. 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. In this ranking, Hawaii appears at No. 46, with a high top marginal personal income tax rate of 11% and a top marginal corporate income tax rate of 6.40%.

The report indicates that, generally speaking, states that spend and tax less experience higher growth rates than states that spend and tax more. Hawaii ranked dead last for sales tax burden, with an average cost of $48.84 per $1,000 of personal income. While this is an important finding for entrepreneurs looking to start their own businesses, it shouldn’t discourage them from investing in their dream franchises if they're in a market with a slower growth rate.

Franchise Growth Plans

So what should franchisors do with this information? When it comes to deciding where franchisors should develop their brand, it’s always important to look at the complete picture of what the region has to offer. 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, findings within the report should not be the deciding measure for franchisors, but they should play a role in the decision.

Sylvan Learning*

Current units in state: 3
Growth capacity in state: 9
Total jobs created at max growth capacity: 90
Total unit count: 710+
Investment range: $85,525 to $186,930

Sylvan Learning, the early education and child care franchise, has already built a significant presence in the state of Hawaii and has identified further opportunities for expansion.

“We pick areas to focus our franchise development efforts based on demographic data we receive from our mapping system provider,” said John McAuliffe, CEO of Sylvan Learning. “We look for areas with a high concentration of families with school-age children whose annual income is $50K or above. We also look at some other factors such as shopping centers, where tutoring centers can be located, schools and competition.”

Griswold

Current units in state: 1
Growth capacity in state: 5+
Total jobs created at max growth capacity: 25+
Total unit count: 170+
Investment range: $95,850 to $174,100

Griswold, the first non-medical in-home senior care franchise, recently signed its first franchise agreement in Oahu, Hawaii with Jennifer Murata, a CEO who is steering her company in a new direction with the investment.

“Hawaii is a unique place,” said Murata. “Geographically, the mix of our population is very different from other parts of the country. We are a blend of many different ethnicities, and we also have a very large Asian population here. Unlike on the mainland, there is a true melting pot of cultures. There is no majority here, so the culture is a little different. When looking for a franchise to partner with, we wanted to make sure it would be the right fit in terms of cultural values. That is something that is very unique to Hawaii, and I am excited to combine that culture with the Griswold brand.”

Paris Baguette*

Current units in state: 4 in development
Total jobs created (at max growth capacity): 80
Total units: 4,000 globally, 130+ in the U.S.
Investment range: $652,565 to $1,750,900

Paris Baguette, the international bakery and cafe franchise, recently announced it would be adding its first four stores in Hawaii. The new locations will be on Oahu, with two spots in Downtown Honolulu, one in the Ala Moana area and a fourth closer to Pearl City.

"They're high-profile sites," said Mark Mele, chief development officer for Paris Baguette, in regard to the new Hawaii locations. "We would refer to them as A+ sites for Paris Baguette, for the brand. I think they're going to be fantastic, bringing something to the state that they've not yet seen. By the end of the year, we'll be at 200 open locations in the U.S. — and hopefully that'll include Downtown [Honolulu]. The product is absolutely incredible."