What Texas's Economic Outlook Means for Franchisors

If you’re a franchisor looking to develop your business in Texas, 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 • 10/21/20

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 Texas, 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: 15
2008–2018 Performance Ranking: 1

The State

The economy of Texas is the second-largest in the United States, with a gross state product of $1.887 trillion. Texas’s economy today relies largely on information technology, oil and natural gas, aerospace, defense, biomedical research, fuel processing, electric power, agriculture and manufacturing.

The coronavirus pandemic has steered the economy into a recession. In Texas, the state’s unemployment rate remains nearly double what it was at the start of the year, and nearly 3.5 million people have filed for unemployment relief since mid-March. During the week ending September 12, a total of 49,644 Texans filed initial applications for unemployment relief. On Aug. 6, the Federal Reserve Bank of Dallas said that the state will recover some of the jobs lost earlier in the year. In August Texas collected $2.8 billion in sales tax revenues, a decrease of 5.6% from the same period in 2019.

Making Sense of the Data

What does this mean for the Texas economy? To start with the Economic Performance report, the index shows that within the past ten years, Texas’s economy has outperformed those of all the other states. The performance index is based broadly on a state’s performance within State Gross Domestic Product (rank: 7th), Absolute Domestic Migration (rank: 1st) and Non-Farm Payroll Employment (rank: 2nd).

The Economic Outlook tells another story about the Texas 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. Texas appears 15th in this ranking. Although they have ranked number one in the past, it is possible that the state may lose the top spot in the future.

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. Although Texas ranked first in the nation for top marginal income tax rates (0%), the state is ranked 38th for sales tax burden, with residents paying an average of $28.38 per $1,000 of personal income. The state is ranked right in the middle when it comes to recently legislated tax changes, with an increase of $0.17 per $1,000 of personal income over the past two years.

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 Texas is ranked first for performance, it is clear there are other factors to take into consideration.

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.

The Brass Tap*

Current units in state: 9
Growth capacity in state: 35
Total jobs created at max growth capacity: 300

Jamie Cecil, vice president of franchise development for craft beer franchise The Brass Tap notes that the restaurant franchise is eager to grow in Texas.

“We’re thrilled about the success of the brand throughout the Dallas metro area, and we see tremendous potential for development across Texas, including in the Houston market,” said Cecil.

Big Blue Swim School*

Current units in state: 0
Growth capacity in state: 50
Total jobs created at max growth capacity: 1750

Big Blue Swim School CDO Scott Thompson notes that the state presents a major opportunity for growth for the swim school franchise.

“Texas is one of the largest markets in the U.S.,” CDO Scott Thompson said. “From a population standpoint, it is one of the fastest-growing states. People are moving to it on a daily basis, and our potential customers are currently residing around major metro areas, so it’s a good starting point to open in multiple major markets. Big Blue Swim School wants to be everywhere, and Texas provides us with an opportunity to hit a handful of large markets at the same time.”

MOOYAH Burgers, Fries & Shakes*

Current units in state: 20
Growth capacity in state: 50
Total jobs created at max growth capacity: 1,000

MOOYAH Burgers, Fries & Shakes President Tony Darden said that the burger franchise has focused on the state for franchise development since day one.

“We are laser-focused on expanding our presence across our home state of Texas,” said Darden. “This is where we are born and bred. We have grown up here, and Texans truly love our standout product and quality Guest service.”

Famous Dave’s*

Current units in state: 4
Growth capacity in state: 15
Total jobs created at max growth capacity: 750

Al Hank, senior vice president of operations for Famous Dave’s, also notes that Texas has been a prime target market for growth.

"Given the recent trends over the past two years and the resiliency of the Famous Dave's brand throughout the pandemic, growth is the focal point for us moving forward,” said Hank. “We're excited to enter new markets and into new territories, by utilizing data, demographics and traffic to find the best locations possible."