What South Dakota's Economic Outlook Means for Franchisors

This summer, ALEC-Laffer published its 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 South Dakota, these rankings reveal a lot about where the state economy is going and where there is opportunity for its economy to grow. 

• 2020 Outlook Ranking: 13
• 2008–2018 Performance Ranking: 16

The State

Usually fueled by the tourism industry and agriculture, South Dakota’s economy has certainly been challenged during the COVID-19 pandemic. The state’s governor Kristi Noem recently released an ad campaign funded by COVID-19 relief efforts promoting tourism within the Mount Rushmore State to support its economy — a controversial matter given that the state is currently one of the nation’s leading hot spots for the virus. 

In her efforts to keep the economy afloat, Governor Noem and the state of South Dakota have kept the rate of unemployment relatively low compared to the other 49 states in the Union. The state reported 10.9% of residents unemployed back in April of this year, but as of October, that number has decreased to 4.1%.

Making Sense of the Data

What does this mean for South Dakota’s economy? To start with the Economic Performance report, the index shows that within the past 10 years, South Dakota has been outperformed by 15 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. South Dakota experienced a significant growth rate of 41.9% in gross domestic product and 7.6% increase in non-farm payroll employment. Over the last 10 years, the state fluctuated greatly in its domestic migration rate, and since 2018 it has welcomed 16,992 residents.

The Economic Outlook tells another story about South Dakota’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, South Dakota is No. 13. ALEC-Laffer has ranked South Dakota favorably over the last 10 years, though this is the state’s lowest ranking since 2013. Still, the state has more potential to grow economically than 37 other states in the Union.

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 South Dakota, this presents important opportunities for growth across several industries. 

Franchise Growth Plans

So what should franchisors do with this information? Though most franchisors take a shotgun approach — meaning wherever a prospective 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. 

Here are a few franchise brands that are planning to grow in South Dakota:

AWATfit Fitness

• Current units in state: 0
• Growth capacity in state: 5+
• Total jobs created at max growth capacity: 5

“Aside from expanding in our home state of New York, we are looking to grow in other states where the population grows exponentially daily,” said Richard Decker, CEO of mobile fitness franchise AWATfit. “We also look into new home permits, school expansion and population drivers. Finally, when identifying places to grow, we look at the average income, average home price, tourism, colleges and climate, as well.”

Toppers Pizza*

• Current units in state: 1
• Growth capacity in state: 5
• Total jobs created at max growth capacity: 25

BeBalanced Hormone Weight Loss Centers*

• Current units in state: 0
• Growth capacity in state: 5+
• Total jobs created at max growth capacity: 75

“Our growth strategy has always been very deliberate — very strategic,” said David Cutillo, CEO of hormone weight loss management franchise BeBalanced. “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 of our position.”

Franchises Headquartered in South Dakota

• Howard Johnson
• Kitchen Tune-Up
• Apartment Movers