Franchising as a whole is expected to have growth in both unit development and economic output by the end of 2023, despite ongoing fiscal challenges.
According to an International Franchise Association report compiled by FRANdata, which tracked roughly 9,000 brands in the United States, there were 790,492 franchised establishments in 2022 with an economic output of $825.4 billion. Both statistics exceeded 2021 numbers, where there were 774,965 units and an economic output of $787.7 billion.
For 2023, the report is projecting a total of 805,436 franchised locations, and an economic output of $860.1 billion. According to Jania Bailey, CEO of franchise consulting firm FranNet, the recent economic challenges have impacted the number of new franchisees entering the industry, rather than the unit and financial statistics.
“A lot of the information that was in the report was in alignment with what we’ve seen and what we’re feeling,” Bailey said. “Despite the units in franchising growing in 2022, the new franchisees coming in or buying was really slow compared to what we’ve seen in the past.”
FranNet CEO Jania Bailey
Bailey said much of it can be attributed to inflation, higher interest rates and an overall lack of confidence.
“What we have experienced with clients has been a lot of fear of the unknown,” Bailey said. “We had thought we had moved past some things with COVID, but then there were economic issues in the world and the war in the Ukraine, and they impacted potential American franchisees.”
While those matters are impacting the franchise world, though, Bailey added said overall, the projections look promising.
“March was the best month that we’ve seen in a couple years,” Bailey said. “The momentum is definitely in a place to have a really solid second quarter, which is what you always hope will continue on.”
Marco’s Pizza President Tony Libardi said via email that the reason for the franchise model’s success is it’s the ability to be resilient and adapt.
“The model inherently allows for quick adjustments to changing market conditions and as a franchisor, we can provide the support and guidance to our franchisees to help them navigate through challenging times and implement necessary changes to their operations,” Libardi said. “Another big benefit of the franchise model is economies of scale. Generally, franchise systems can better negotiate and address supply chain challenges, leverage centralized marketing efforts and share resources and best practices among franchisees.”
Franchising strong in the South
Geographically, the 10 fastest-growing states for franchising, according to the report, are Arizona, Colorado, Florida, Georgia, Illinois, North Carolina, South Carolina and Texas. This was reflected in the report’s regional breakdown, which showed the Southeastern and Southwestern regions both outpacing the rest of the country.
In 2023, franchise establishments are projected to increase by 2.9 percent in the Southwest, followed by 2.2 percent in the Southeast, 1.9 percent in the Midwest, 1.2 percent in the western states and 0.8 percent in the Northeast.
The story is similar when it comes to projected growth in economic output, with the Southwest leading at 5.3 percent, followed by the Southeast at 4.5 percent, the Midwest at 4.2 percent, western states at 3.5 percent and 3.1 percent in the Northeast.
From Bailey’s perspective, the Sunshine State has been an especially noticeable hotbed for franchising.
“Central Florida is exploding,” Bailey said. “The infrastructure can’t keep up. Part of that is that there’s no income tax in Florida. That makes it very attractive. But also, the overall climate in all of those states, such as Texas, the Carolinas and Tennessee, is more business friendly. They tend to have a lot of benefits for people opening and going into business for those markets.”
Marco’s Pizza, which is headquartered in Ohio, is one of the brands growing nationwide with a big boost in southern states. For example, in 2022, the brand signed a 15-unit deal for Tampa, Florida, and a 46-unit agreement for Phoenix.
Marco’s Pizza President Tony Libardi
“One of the franchise model’s greatest benefits is the ability to scale, and scale aggressively,” Libardi said. “Franchise development continues to surge, with more than 200 stores in various stages of development, and hundreds of agreements signed. In 2022, Marco’s opened 90-plus stores and awarded 140 franchises. In the last six years, we’ve doubled our footprint.”
QSRs remain king, personal service concepts grow
The number of quick-service restaurants in the United States is projected to rise from 192,057 in 2022 to 196,858 in 2023, a 2.5 percent increase. QSRs are also expected to once again have the largest economic output, with a projected increase of 5.1 percent, from $257.7 billion in 2022 to $289.6 billion in 2023.
Another growth category, according to the report, is personal services. The number of units for personal service brands is, like QSRs, projected to increase 2.5 percent, from 117,368 to 120,302.
Percentage-wise, personal service brands are projected to have the biggest increase in economic output, rising by 6.7 percent, from $39.5 billion to $42.1 billion. Bailey said she’s noticed the success with personal service companies in her experience.
“We have seen a big increase in boutique fitness, with people going back to their routines of working out,” Bailey said. “People see those businesses as being steady, tried and true, and it’s a demand in our world, to have a place to work out, and having a non-traditional gym is attractive.”