What Iowa’s Economic Outlook Means for Franchisors

If you’re a franchisor looking to develop your business in Iowa, 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 • 07/17/23

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 Iowa, 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: 32
2023 Economic Performance Ranking: 30

The State

Despite steady post-COVID recovery, challenges continue to plague the state of Iowa, including supply chain shortages, high demand for durable goods, inflation and a shortage of hiring staff. In May 2023, the unemployment rate in Iowa was 2.7%, significantly lower than the country’s average.

In the fourth quarter of 2022, the real GDP for Iowa was $228.6 billion in goods and services per year. This represents a growth rate of -1.2% per year, compared with 0.3% the previous quarter. This is lower than the U.S. overall. The top industries in the state of Iowa include mining, quarrying, and oil and gas extraction.

Experts do predict a slight economic downturn in Iowa throughout the rest of 2023, but it will likely be relatively brief compared to other states.

“Overall, the state is in an incredibly strong financial position and is well situated to manage whatever futures that circumstances dictate,” said Kraig Paulsen, director of the Iowa Department of Management. “I continue to be optimistic that any downturn will be weathered, and at least in Iowa, it will be shallow and relatively short.”

Making Sense of the Data

What does this mean for Iowa’s economy? To start with the Economic Performance report, the index shows that within the past 10 years, Iowa has been outperformed by 29 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. Iowa has lost roughly 30,000 residents, the 30th worst Absolute Domestic Migration ranking in the country.

The Economic Outlook tells another story about Iowa’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, Iowa appears at No. 29, with a Top Marginal Personal Income Tax Rate of 6% and a Top Marginal Corporate Income Tax Rate of 8.41%.

The report indicates that, generally speaking, states that spend and tax less experience higher growth rates than states that spend and tax more. Iowa ranked seventh for recently legislated tax changes, with a $2.97 decrease in taxes owed 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.

Fit for You Franchising

Current units in state: 0
Total unit count: 19
Investment range: The total initial investment necessary to begin operation of a Fitness Premier Club Model is $279,849 to $575,499 per unit, and $92,850 to $200,000 per unit for a fitWave Model.

Fit For You Franchising, the franchisor behind low-cost, group-fitness franchise fitWAVE and the fitness brand Fitness Premier 24/7 Clubs, offers an innovative model that brings group fitness and engaging classes to rural markets and the suburbs. It's quickly sweeping the Illinois, Indiana region. The average community size where a Fitness Premier goes has between 15,000-20,000 in total population in a five-mile radius. This makes it ideal for rural states like Iowa.

“We like to focus on underserved markets,” said Jason Markowicz, CEO of Fit For You Franchising. “These areas are full of families and individuals who have the interest and disposable income to support a gym membership, but the population isn’t quite large enough to attract big box gyms. News can travel quickly in these smaller markets, and franchises often expect to get off to a fast start. You can build a business in a short period of time and create serious energy within a community, and it pairs extremely well if the market for a certain franchise is strong, too.”

Slim Chickens

Current units in state: 1
Growth capacity in state: 9+
Total jobs created at max growth capacity: 100+
Total unit count: 80+
Investment range: $1.07 million to $3.37 million

Slim Chickens, an Arkansas-based fast-casual restaurant chain specializing in tenders and wings, recently signed a deal to bring nine locations to cities throughout central Iowa. Jeff and Leanne Brands, the franchisees behind the signing, also own over 20 Taco John's in the state. The brand is hoping to open locations in Des Moines, Cedar Rapids, Iowa City and Waterloo-Cedar Falls.

"Jeff and Leanne are the type of franchise partners that we hope to grow with, and with their experience, we have no doubt that their central Iowa locations will become local favorites," Jackie Lobdell, vice president of franchise development at Slim Chickens, said in the release. "We're excited to have the brand break into Iowa, and know that Jeff and Leanne are the right partners to lead the development."

The Brass Tap*

Current units in state: 1
Growth capacity in state: 5+
Total jobs created at max growth capacity: 35+
Total unit count: 46
Investment range: $791,967 to $1,327,475

The Brass Tap, the craft beer bar and entertainment franchise, currently has one location in Cedar Rapids and is looking to maintain the brand experience as it expands further throughout the state.

“We’re excited to expand our footprint into new areas with great multi-unit franchise owners,” said CEO Chris Elliott. “As we continue to elevate the brand experience through new developments in our food and beverage offerings, the decision only becomes more clear that the time to franchise with The Brass Tap is now. Our recent growth can attest to that fact, and we are looking forward to seeing what the future has in store for us.”

Famous Dave’s*

Current units in state: 5
Growth capacity in state: 50
Total jobs created at max growth capacity: 750
Total unit count: 132
Investment range: $881,750 to $4,495,750

Famous Dave’s, the BBQ restaurant franchise, has already proven to thrive in cities all across Iowa, including Des Moines and Cedar Rapids. Now, the franchise is looking to fill out available markets in the state.

"Given the recent trends over the past three years and the resiliency of the Famous Dave's brand through the pandemic, growth is the focal point for us moving forward,” said senior vice president of operations of Famous Dave’s Al Hank. “We're excited to enter new markets and into new territories by utilizing data, demographics and traffic to find the best locations possible."