What Minnesota's Economic Outlook Means for Franchisors

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

By Andrea Jablonski1851 Franchise Contributor

8:08AM • 10/05/20

This month, ALEC-Laffer published their 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 a 10-year period from 2008 until 2018. For the state of Minnesota, these rankings reveal a lot about where the state economy is going and where there is opportunity for their economy to grow.

2020 Outlook Ranking: 45
2008–2018 Performance Ranking: 20

The State

As a result of the COVID-19 pandemic, Minnesota’s economy has experienced significant challenges. Unemployment in the state reached its peak in mid-May, with over 405,000 residents filing claims. However, as recently as early August, Minnesota has created 32,000 new jobs in the leisure, hospitality and food service industries — meaning the unemployment rate saw a fall from 8.6% to 7.7%.

Historically, a large part of Minnesota’s economy has been reliant on agriculture, especially pork and dairy production. The advent of COVID-19 resulted in statewide shutdowns that boosted demands at the grocery store, but the high unemployment rate of farmers meant that this demand could not be met. As a result, the $37 billion industry that makes up 15% of the state’s economic output is expected to see $660 million in losses. According to economists, the impact will extend far beyond farmers. It’s the local economies that are reliant on agriculture — restaurants, schools, and other commercial customers — that will have to adjust their marketing efforts and volume of supply if they want to survive the pandemic.

Making Sense of the Data

What does this mean for Minnesota’s economy? To start with the Economic Performance report, the index shows that within the past ten years, Minnesota has been outperformed by 19 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. The category that most negatively impacted the state’s economic performance was its Absolute Domestic Migration. Minnesota’s population has been on a decline since 2009 seeing nearly 44,000 residents move away from the Lake State. However, Minnesota’s State Gross Domestic Product has held steady, seeing growth rates of 39.4 percent and a rank at No. 16 in the country.

The Economic Outlook tells another story about the Minnesota 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 category, Minnesota ranked No. 45. Although it’s ranked near the back of the pack, the state’s economy can expect some relief in the recently legislated tax change variable — down 0.71 cents per $1,000 of personal income.

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 states like Minnesota, this presents an opportunity to grow.

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. In the past, ALEC-Laffer has consistently ranked Minnesota’s outlook low. However, the report also indicates the state has been making efforts to diversify its economy outside of agriculture, and that trend may continue as people seek new career opportunities in the aftermath of the pandemic.

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.

Famous Dave’s*

Current units in state: 12
Growth capacity in state: 15
Total jobs created at max growth capacity: 750

Al Hank, senior vice president of operations of BBQ franchise Famous Dave’s, said the brand’s growth potential is significant, and sees Minnesota as a promising state to target.

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

Renovation Sells*

Current units in state: 0
Growth capacity in state: Unlimited
Total jobs created at max growth capacity: 1 per unit plus subcontractor work

Michael Valente, CEO of home renovation franchise Renovation Sells, says the brand chooses to grow in states that have the right demographics and are lacking in home-improvement resources. With that in mind, he notes Minnesota as a perfect target.

“As we embark on franchising our opportunity, we have the benefit of a business model that fills a gap in the marketplace as well as ample territory availability across the country,” said Valente. “2020 has been an interesting year — that's for sure — but it's proven how resilient our business model is. We're excited to expand in metros that are experiencing a real estate surge as millennials reach a home-buying age. We also look at communities that have a large amount of older, dated homes that can greatly benefit from simple renovations to increase their value in the marketplace.”

BeBalanced

Current units in state: 1
Growth capacity in state: 5+
Total jobs created at max growth capacity: 15

David Cutillo, CEO of hormone-based weight management franchise BeBalanced, notes that generating brand awareness is the key component when it comes to franchising his brand, and with careful marketing, the brand is poised for growth in Minnesota.

“Our growth strategy has always been very deliberate — very strategic,” Cutillo said. “We’ve been careful to make sure every aspect of our operations has been perfected and that we have strong brand awareness before breaking into a new market. Right now, everything is aligned for us, and we’re excited to take full advantage.”