What New York’s Economic Outlook Means for Franchisors

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

By Victoria CampisiStaff Writer

11:11AM • 07/25/23

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 New York, 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: 50
2023 Economic Performance Ranking: 31

The State

Economic activity in New York is slowing down due to several factors. For one, high growth industries in New York City, such as finance and technology, are being affected by interest rates, while the manufacturing and trade/logistics sectors are facing a decline in global goods demand. As a result, it is expected that the real gross domestic product (GDP) growth in New York State will be lower than the national average in 2023, with a projected increase of 1.2%. By 2024, the growth is expected to converge at around 0.7%.

When comparing the growth in non-farm payrolls between New York and the United States, New York's job growth has been slower in 2023. Over the first five months of the year, New York experienced a growth rate of 0.4%, while the United States saw a growth rate of 1%. However, the labor force participation rate has been increasing, especially in New York City, leading to a 0.8% increase in the labor force in 2023, although it remains slightly below the national average. Additionally, the unemployment rate has slightly decreased to 3.9%, but it is projected to rise to an average of 4.3% this year due to slowing economic growth.

Meanwhile, after a record loss between 2020 and 2021, New York State’s population decreased by another 180,341 people during the 12 months ending July 1, 2022, according to U.S. Census Bureau estimates.

Making Sense of the Data

What does this mean for New York’s economy? To start with the Economic Performance report, the index shows that within the past 10 years, New York has been outperformed by 30 other state economies.

The performance index is based broadly on a state’s performance within state GDP, absolute domestic migration and non-farm payroll employment. New York has seen an absolute domestic migration of -1,778,252, ranking it 50th in the country.

The Economic Outlook tells another story about New York’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, New York appears last at No. 50, with a top marginal personal income tax rate of 14.78% and a top marginal corporate income tax rate of 18.28%.

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 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.

Pollo Campero*

Current units in state: 11
Growth capacity in state: N/A
Total jobs created at max growth capacity: N/A
Total unit count: 350
Investment range: $1,287,250 to $2,491,500

Pollo Campero, the world’s largest Central American chicken chain with more than 350 restaurants worldwide, has been expanding in Manhattan. Since the first New York City-area Pollo Campero opened in Corona, Queens, in 2004, the brand now has 11 locations in the metropolitan area, with more coming soon.

“We’ve had some fantastic openings with great turnouts in New York City,” said director of franchise development Blas Escarcega. “We’re expanding in the city because we felt that it was a great opportunity to reach a larger presence. New York City has a significant number of tourists, as well as people that live there, making it a great environment for us to succeed in. Additionally, opening in Manhattan will introduce our great brand to franchise prospects who may be visiting New York City either for business or pleasure.”

Sir Grout

Current units in state: 6
Growth capacity in the state: N/A
Total jobs created at max growth capacity: N/A
Total unit count: 57
Investment range: $121,830 to $182,710

Sir Grout, the hard surface restoration and maintenance franchise, is targeting New York City for additional franchise growth. With four Sir Grout owners already established in the state, brand awareness is strong, and the concept has proven success in the area. Now, it is looking to add additional locations in Brooklyn, Queens and Manhattan. Kieran Scott, president of Growth Brands, explained that the architecture within New York City positions Sir Grout to succeed.

“In New York City, everything is vertical, and that’s harder to construct,” he said. “Often in these markets, people look to do restoration and enhancement projects rather than full tear-outs and re-installations. It’s cheaper and easier for homeowners and other building managers to keep an existing backsplash, for example, and allow us to restore it than to tear it out, send it 500-plus feet down to ground level, then dispose of it.”

Paris Baguette*

Current units in state: 45
Growth capacity in the state: N/A
Total jobs created at max growth capacity: 15 - 20 per location
Total unit count: 4,000+
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 been targeting New York for franchise development.

“We are thrilled to announce additional expansion within New York,” 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.”