What New Jersey’s Economic Outlook Means for Franchisors

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

By Luca Piacentini1851 Franchise Managing Editor

8:08AM • 10/02/20

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 New Jersey, 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: 48
2008–2018 Performance Ranking: 45

The State

The largest industries driving New Jersey’s economy include pharmaceuticals and life sciences, financial services, advanced manufacturing, information technology, and transportation and logistics. Nineteen Fortune 500 companies are based in New Jersey, four of which are Fortune 100 companies. While the technology industry in New Jersey is shrinking, the healthcare and life sciences industry continues to grow due to the concentration of medical centers and the demand driven by an elderly population.

According to a state-by-state study of the economic impacts resulting from COVID-19, researchers with the personal finance website WalletHub ranked the Garden State No. 14 in terms of its economic response to the pandemic. Researchers in the study asserted New Jersey’s overall employment was the seventh-most-impacted across the U.S., with several specific industries hit especially hard from the closures.

Making Sense of the Data

What does this mean for New Jersey’s economy? To start with the Economic Performance report, the index shows that within the past ten years, New Jersey has been outperformed by 47 other state economies. The performance index is based broadly on a state’s performance within State Gross Domestic Product (rank: 43rd), Absolute Domestic Migration (rank: 47th) and Non-Farm Payroll Employment (rank: 33rd).

The Economic Outlook tells another story about the New Jersey 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, are influenced directly by state lawmakers through the legislative process. In this ranking, New Jersey is seated 48th. Although they’ve been significantly behind in performance, the report suggests that the state’s economic future doesn’t look much better.

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 New Jersey, this presents an opportunity for improvement. For example, the state is ranked 48th in the nation for property tax burden, with $51.51 per $1,000 of personal income. The report also ranks it 48th when it comes to average workers’ compensation costs, with $2.84 per $100 of payroll.

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. Although New Jersey has been behind in performance and outlook, the state is ranked 4th lowest in the nation for remaining tax burden, with only $12.82 paid per $1,000 of personal income.

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.

Home Clean Heroes*

Current units in state: 0
Growth capacity in state: 1
Total jobs created at max growth capacity: 7

Joe Delatte, president of residential-cleaning franchise Home Clean Heroes, notes that New Jersey has been a prime target market for the brand.

“It’s no secret we aren’t the first residential-cleaning business model, but we are excited to bring a fresh approach to markets in states where this particular model and franchise opportunity haven't been available,” said Delatte. “We’ve gained great traction in the Southeast and are looking to build out neighboring territories to existing locations. We look at income and household numbers in these markets, and along with website analytics, we can zero in on markets where the need matches the want.”

TWO MEN AND A TRUCK*

Current units in state: 3
Growth capacity in state: 13
Total jobs created (at max growth capacity): 299

Cheryl Ackley, franchise development specialist for moving franchise TWO MEN AND A TRUCK, also noted that New Jersey is primed for growth.

“At TWO MEN AND A TRUCK, we look at many different pieces when defining territories, specifically using data on individual household incomes, population and ZIP codes,” said Ackley. “These reflect how the full-service moving experience will impact our communities in a positive way by moving our customers forward.”

Brass Tap*

Current Units in State: 1
Available Units: 5+
Total jobs created (at max growth capacity): 30

Jamie Cecil, vice president of franchise development at craft beer franchise The Brass Tap notes that New Jersey offers the potential for at least one location in the state.

“Bringing The Brass Tap to New Jersey will give craft beer aficionados another reason to celebrate the unique flavors and local brews being produced in the region,” said Cecil. “We also have a lot of franchisees that have already made the decision to reinvest in the brand, and that says a lot about the kind of unparalleled opportunity we offer to our franchisees, too.”