Franchising showed growth in every economic metric last year and positive momentum is projected to keep rolling in 2024.
That’s according to the 2023 Franchising Economic Outlook Report, prepared by the International Franchise Association and FranData.
A major indicator of continued success is franchise output, which represents the total value of sales of goods and services. For 2024, the projected franchise output across the U.S. economy is $893.9 billion, a 4.1 percent increase from $858.5 billion in 2023.
“We think our economic forecast for 2024 is very encouraging,” said Michael Layman, IFA senior vice president of government relations and public affairs. “That franchising is growing faster than the rest of the economy. Particularly, it’s encouraging at a time when there’s been so much about the economy that hasn’t been positive in recent years.”
Another positive metric is unit growth, with the number of franchised establishments increasing by 2.2 percent in 2023 and another 1.9 percent predicted for 2024. The increase will bring the number of franchised units to an estimated 821,000 by year’s end.
Categories with the most establishment growth anticipated are retail food, products and services at 2.1 percent and quick-service restaurants at 2.2 percent. For the former, there were an estimated 168,446 in 2023 and the number is projected to reach 171,983 in 2024. For QSRs, the estimated total for 2023 was 195,507, and it’s expected to grow to 199,808 in 2024.
Franchise brands will also create 221,000 jobs in 2024, increasing the number of employees from 8.6 million to 8.9 million.
The IFA’s report found that much of the growth will come in southern states. The 10 states with the most growth expected are Arizona, Colorado, Florida, Georgia, Maryland, North Carolina, South Carolina, Tennessee, Texas and Virginia. Of the 10, South Carolina is projected to have the most growth, with a 5.2 percent increase in units, a 5 percent rise in employment and 9.9 percent jump in franchise output.
“Most of the disruptive proposals tend to come from the coastal states,” Layman said. “I think that’s part of the reason investors both on the brand and franchisee side are seeing the southern states as a friendlier business climate.”
One of the more notable examples of disruptive state legislation came from California. In 2022, the state’s legislature passed a bill raising the minimum wage to $22 and created a council with the authority to make decisions related to pay, benefits and work conditions.
IFA Senior VP of Government Relations and Public Affairs Michael Layman
After the IFA challenged the law in court, the association met with labor representatives and elected officials to negotiate the repeal of the original law and replace it with legislation that sets the minimum wage at $20 and establishes a council with less power.
In addition to its economic forecast, the IFA also released its annual survey of franchisors, with 215 brands across 26 industries taking part. Unlike 2023, inflation was no longer the primary concern, falling from 20 percent of respondents citing it as the biggest issue to 9 percent in 2024.
Instead, the major challenge franchisors listed is the cost and quality of labor. Of the respondents, 34 percent cited labor challenges. While this was down from 47 percent in 2023, 80 percent of the franchisors reported that their franchisees had unfilled job vacancies.
“Coming out of the pandemic, and as the economy returned and digested the stimulus, franchising has acutely felt the pressures from the labor market, as well as the price of goods and services,” Layman said. “But, for the second straight year, the intensity of those concerns have been reduced a bit.”
To deal with labor issues, in the next six months, 61 percent of franchisors said they’d adjust wages, 57 percent said they’d seek increases in efficiency, 39 percent said they would change benefits, 33 percent said they would add a retention bonus and 25 percent said they would change production hours. Additionally, 66 percent said they would implement more technology to improve operations.
The subject of government regulations also came up in the survey, with 11 percent listing it as the biggest problem facing franchisees today, up from 7 percent in 2023. In particular, franchisors were asked about the implications of the new joint employer standard, which could make brands liable for labor law violations by franchisees and sets a legal obligation for them to negotiate with unions.
When asked if they would be to take more control of franchisees’ day-to-day operation because of the standard, 74 percent said there was a high level of concern, 12 percent said there was some and 6 percent responded that their concern was minimal.