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 Luca Piacentini1851 Franchise Managing Editor

9:09AM • 07/24/23

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 Minnesota, 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: 48
2023 Economic Performance Ranking: 27

The State

With growing uncertainty about the U.S. economy, Minnesota is predicting a mild downturn this year. In the past, Minnesota has been insulated from major swings in the economy due to its uniquely diverse mix of industries. The state regained jobs faster than the U.S. average following the 2008 recession, for example, but coming out of the pandemic, Minnesota has had a harder time catching up.

This past year, Minnesota recorded some of the lowest monthly jobless rates of all states, including the lowest-ever state unemployment rate in U.S. history of 1.8% in June and July. But Minnesota's biggest challenge is coming from a rapidly shrinking workforce. The state’s labor pool has declined by nearly 3% since 2020, which is twice the national average in that span. There are about 94,000 fewer workers in its 3.1 million labor force compared to before the pandemic. Only five states have seen bigger declines.

"We have been growing slower than the U.S. economy and a lot of peer states," said Sean O'Neil, director of economic research at the Minnesota Chamber of Commerce. "We've just not had the supply or labor force to help companies grow and expand.”

On the franchising front, Burger King recently announced it was closing nine stores in Minnesota. One of the state’s franchisee groups, Meridian Restaurants Unlimited, owns 119 Burger King restaurants and filed for Chapter 11 bankruptcy in March.

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 10 years, Minnesota has been outperformed by 26 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. Minnesota has seen a decrease of over 44,000 residents over the past 10 years, but has seen its state gross domestic product (GDP) increase by 43%.

The Economic Outlook tells another story about Minnesota’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, Minnesota appears at No. 45, with a top marginal personal income tax rate of 9.85% and a top marginal corporate income tax rate of 9.8%.

The report indicates that, generally speaking, states that spend and tax less experience higher growth rates than states that spend and tax more. Minnesota ranked relatively well when it comes to sales tax burden, with an average cost of $19.58 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.

Paris Baguette*

Current units in state: 1
Growth capacity in state: 5+
Total jobs created at max growth capacity: 100+
Total unit count: 140+ in the U.S.
Investment range: $652,565 to $1,750,900

Paris Baguette, the bakery café concept with 4,000 units worldwide including nearly 150 in the United States, has seen significant growth in the past year, including its first signing in Maple Grove, MN.

“We are thrilled to announce our expansion to Minnesota,” explained Mark Mele, chief development officer. “There’s a tremendous amount of opportunity in the bakery café space. No other bakery café franchisors are doing what Paris Baguette is on the same scale. Our ability to stay true to our bakery café roots while embracing aggressive expansion has garnered attention, and that only serves to drive us forward.”

Frenchies

Current units in state: 2
Growth capacity in state: N/A
Total jobs created at max growth capacity: N/A
Total unit count: 24
Investment range: $262,444 to $447,016

Frenchies Modern Nail Care, the nail care franchise, has pinpointed several states as prime markets ripe for franchise growth, one of which is Minnesota due to the brand’s existing two locations.

“We are looking to grow in these markets first because it gives incoming franchisees the ability to tap into existing brand recognition,” said Frenchies VP of marketing Stacy Stout.

Furthermore, the Frenchies team has identified demographics in these states that align with the brand's focus on beauty services.

“These markets really align with our target customer,” said Frenchies co-founder Stephanie Coffey. “Beauty brands are really strong right now. Period. They are very resilient, sustainable and Amazon-proof. These markets have a consumer base that invests in beauty services regularly. ”

Slim Chickens

Current units in state: 1
Growth capacity in state: 13
Total jobs created at max growth capacity: 975
Total unit count: 200+
Investment range: $1.07 million to $3.37 million

Slim Chickens, a leading fast casual franchise, which features dine-in and drive-thru service in the better-chicken segment, recently signed a multi-unit agreement to expand the brand across Minnesota. The first of the batch opened in Mankato late last year.

“We could not be more ecstatic about expanding into Minnesota!” said Jackie Lobdell, vice president of franchise development at Slim Chickens, in a press release. “It’s definitely a great day to live in Mankato. We are eager for locals to get their first bite of our mouth-watering chicken and flavorful menu offerings. Our team can’t wait to see all of the success that Letnes Restaurant Group has with not only this location, but the 12 additional restaurants that they will open as part of their development agreement. They are a great example of a passionate multi-unit operating group that we are looking to expand with across the country.”