What Tennessee’s Economic Outlook Means for Franchisors

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

By Sarah Baumann1851 Franchise Contributor

8:21 PM • 11/10/20

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 Tennessee, 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: 8
2008–2018 Performance Ranking: 9

The State

The Volunteer State has had their share of hardship this year amid the COVID-19 pandemic. Recent reports demonstrate, however, that Tennessee is in the top half of the 50 states for recovery, ranked at No. 24. In the month of June, the jobless rate in Tennessee was at 9.7 percent. Although that rate decreased in July, it is again currently increasing steadily as of September 3. Tennessee’s annualized gross domestic product growth through the first quarter of the year stood at 2 percent, according to 24/7 Wall St., while their poverty rate hit 15.3 percent.

Although the economy is slowly recovering, many livelihoods — particularly those in the tourism and entertainment sectors — are still at risk. As cases of COVID-19 continue to decline, the state’s economy has a better chance of overall improvement.

Making Sense of the Data

What does this mean for Tennessee’s economy? To start with the Economic Performance report, the index shows that within the past ten years, Tennessee has been outperformed by only eight 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 slowed the agriculturally driven state down was their Non-Farm Payroll Employment status. Tennessee grew a whopping 13.0 percent in this category, setting them ahead of 38 other states in growth. Its State Gross Domestic Product also hit new heights with a 44.7 percent growth rate.

The Economic Outlook tells another story about the Tennessee 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, Tennessee is ranked 8th overall. The state scored well in most categories, but was near the bottom of the barrel for sales tax burden, where it was ranked No. 41 and at No. 34 for state liability system survey.

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 Tennessee, this presents an opportunity to grow. The dollar is projected to stretch further in Tennessee than in most other states, and, in a time when the agriculture-driven state's top source of income is struggling under the pandemic, Tennesseans will be looking for ways to have a career in other industries and further diversify the economy.

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 all ways, Tennessee is showing stable growth — a trend that should continue post-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.

Workout Anytime

Current units in state: 27
Growth capacity in state: 5+
Total jobs created at max growth capacity: 50+

Terri Harof, director of franchise development at Workout Anytime, describes Tennessee as an ideal market in which to grow for the 24-hour fitness brand.

"The first location we opened outside of Georgia was in Knoxville, Tennessee,” said Harof. “We had an area developer there who has been a franchisee almost since we started franchising in 2005, so he has done a lot to support growth and training in that market. Another one of our largest franchisees is also in Tennessee, and we are looking at a few new markets for him right now. From an organic growth perspective, Tennessee makes sense because it is so close to our headquarters. It also has definitely embraced the high-value, low-cost gym model. Some of our most successful clubs are in Tennessee.”

Seniors Helping Seniors

Current units in state: 1
Growth capacity in state: 5+
Total jobs created at max growth capacity: 50+

Howard Algeo, director of business development and training at Seniors Helping Seniors, said the at-home senior care brand is keen on the idea of growth in Tennessee.

“Tennessee is a great place to start and run a business,” said Algeo. “We have been able to plan, innovate and grow in a supportive environment. We look forward to expanding our business and helping even more seniors."

MOOYAH Burgers, Fries & Shakes

Current units in state: 2
Growth capacity in state: 9
Total jobs created at max growth capacity: 225

President of “better burger” brand MOOYAH Burgers, Fries, & Shakes Tony Darden told 1851 that Tennessee is an excellent place to expand given the state’s warm atmosphere and capacity for growth.

"We have had many Franchise Owners join our brand after embracing everything we offer to our Guests, and we know that our two locations in Tennessee will help lay the path for further development across the area," said Darden.