What Michigan’s Economic Outlook Means for Franchisors

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

By Sarah Baumann1851 Franchise Contributor

7:19PM • 11/10/20

This summer, ALEC-Laffer published its annual Economic Competitiveness Rankings that 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 backward-looking measure based on a state’s performance over the past 10 years.

Michigan's Rankings

2020 Outlook Ranking: 14
2008–2018 Performance Ranking: 32

The State

Like every other state in the union, Michigan faced no end of difficulties under the COVID-19 pandemic. At the same time New York seemed to be the hotbed of the virus, the Metro-Detroit area was similarly disrupted by the virus — peaking at more than 1,400 cases per day in early April. However, it was reported that the caseload has narrowed down to 1,000 cases per day in early September.

Much like with the wellness of its constituents, the Wolverine state is making a turnaround economically as well. It was recently reported that Michigan is recovering faster than most other states. In a business index compiled by Moody’s Analytics and CNN Business, Michigan ranked tenth among states that are closest to their economic performance pre-pandemic. This Back-To-Normal index indicates that Michigan is now operating at 86% of where it was at the start of March — a stat that is far above the national average of 80%.

In a separate report, tax data showed that Michigan’s fall in revenue is exponentially less than expected. The state was also able to secure an additional $300 per week in unemployment for Michiganders, which should — in the immediate — help individuals and businesses moving forward as the pandemic continues.

Making Sense of the Data

What do Michigan’s past few months mean in tandem with the Competitiveness Rankings? To start with the Economic Performance report, the index shows that within the past ten years, Michigan has been outperformed by 31 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. Though Michigan experienced a growth rate of 36.5 percent in Gross Domestic Product and 7.9% in Non-Farm Payroll Employment, the state saw a major domestic migration outward. Michigan lost 385,458 residents in the span of 10 years and ranked 46 overall for Absolute Domestic Migration. Though the state was relatively average in the other two categories, migration had a detrimental effect on the state's performance.

The Economic Outlook tells another story about Michigan'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, are influenced directly by state lawmakers through the legislative process. The state ranked 14 among the 50 states for outlook, performing well in categories related to right-to-work status, state inheritance, number of tax expenditure units and number of public employees per population of 10,000. While the state had its share of economic struggles over the past 10 years, the state’s recent bounce back after COVID-19 and the state’s legislative trends indicate the state is on a path to further growth.

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 their dream franchise if they're in a market with a slower growth rate. For Michigan, this means the state will continue to pursue a path of economic incline, which makes it a stable state to initiate a new business.

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.

Famous Dave’s*

Current units in state: 4
Growth capacity in state: 50
Total jobs created at max growth capacity: 750

Senior Vice President of Operations for Famous Dave’s Al Hank said strategy is key to growth, particularly in the time of the pandemic.

"Given the recent trends over the past two years and the resiliency of the Famous Dave's brand through 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."

**Checkers* & Rally’s**

Current units in state: 2
Growth capacity in state: 5+
Total jobs created at max growth capacity: 25+

Checkers & Rally’s Director of Franchise Development Robert Bhagwandat said that, at present, the brand’s model is attractive to potential franchisees because it has proven pandemic-proof.

"The Checkers & Rally's franchise opportunity has proven to be a strong and resilient investment throughout the COVID-19 pandemic,” said Bhagwandat. “Our drive-thru model and well-integrated delivery system, has allowed our brand to thrive during a difficult time for many restaurant brands, which has resulted in minimal disruption; new restaurant openings with record sales; a lift in both drive-thru and delivery sales and several new franchisee signings. There are a lot of great things in the works and we're looking forward to partnering with strong franchise owners as we continue to grow our brand."

Hounds Town USA

Current units in state: 0
Growth capacity in state: 15
Total jobs created at max growth capacity: 90

Marketing Director Linton Dowling for Hounds Town USA said that data plays a critical role in the doggy daycare brand’s strategic growth plan.

“If we’re trying to project growth potential, we look at a number of economic data points,” said Dowling. “Employment rate, apartment/housing booms, employment growth and interstate population growth. Young people move a lot, and of course they bring their dogs with them. Dogs need the support of a pack mentality just like our need to build a friendship circle.”

Right At Home

Current units in state: 0
Growth capacity in state: 3
Total jobs created at max growth capacity: 150

Eric Little, Chief Development Officer of senior care franchise Right At Home, said that typically their team decides on where to expand the brand after extensive research.

“When we identify target markets, the first thing we look at it are markets where we don’t currently have a presence,” said Little. “It’s important for us to plant Right at Home* flags in new MSA’s so we can increase our market share, and to help us provide market coverage for our national and regional referral partners. We also consider household income, population density, and other standard demographics.”