The 2023 Franchising Economic Outlook Report shows that franchising growth in every economic metric in 2023 will continue in 2024. This report, which the International Franchise Association and FranData prepared, lists a few indicators of continued success.
As franchise growth trends upward, it’s essential for new and existing franchisees to understand the legal and financial intricacies of expanding their operations in a competitive market. With evolving regulations and rising costs, consulting an expert, such as those at Franchise.Law, can be invaluable for franchisors and franchisees. These firms provide specialized legal guidance, helping clients navigate contracts, compliance, and risk management. By securing expert legal advice, franchise owners can better position themselves to maximize growth opportunities and protect their investments amid shifting economic conditions.
This article looks at the different metrics and major indicators of continued success for franchising.
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Franchise Output
One of the major indicators that franchise growth will continue is in the area of franchise output. This represents the total value of the sales of goods and services, which is projected to be $893.9 billion across the US economy. This number indicates a 4.1 percentage increase from the $858.5 billion that the industry realized last year.
Commenting on the results, IFA senior vice president of government relations and public affairs, Michael Layman, says, “The 2024 economic forecast is encouraging.” According to Layman, “franchising is growing faster than other areas of the economy.” This is particularly encouraging given that the economy has been consistently in the negative lane in recent years.
Increase in Franchised Establishments
Another proof that franchise growth will project into 2024 is the increase in the number of franchised establishments. In 2023, there was a 2.2 percent increase in the number of franchised businesses; experts predict a 1.9 percent increase in 2024. By the end of 2024, the increase would have yielded an estimated 821,000 franchised units.
Meanwhile, the areas expected to have the most establishment growth are products and services, retail food, and quick-service restaurants. Retail food and products and services are expected to have 2.1 percent growth, with an estimated 171,983 in 2024.
On the other hand, quick-service restaurants are projected to reach 199,808 in 2024 from the 195,507 recorded in 2023. Additionally, the prediction is that franchise brands will create up to 221,000 jobs in 2024, bringing the number of employees to 8.9 million.
States Franchise Growth Will Likely Come From
According to the IFA report, much of the franchise growth will occur in southern states, which are ten in total. The states with the most growth include Georgia, Arizona, South Carolina, Virginia, Texas, Florida, Colorado, North Carolina, Tennessee, and Maryland. Meanwhile, out of the ten, the state is projected to have the most growth in South Carolina, with a 9.9 percent increase in franchise output.
Disruptive State Legislation
While some states are positioning for franchise growth, others are posting disruptive proposals pursuing investors. Meanwhile, most of these disruptive proposals come from the coastal states, which is partly why brand and franchisee investors consider southern states friendlier.
In 2022, for example, California’s legislature passed a bill where it increased the minimum wage to $22. Also, the bill proposed the creation of a council that had the authority to decide on pay, work conditions, and benefits. After a few legal battles with the IFA, the minimum wage was brought back to $20 and created a council with less power.
Conclusion: Franchisors’ Major Challenges and Solutions
A major challenge most franchisors face is the cost and quality of labor. A survey of 215 franchise brands across 26 industries showed that 34 percent cited labor challenges. While that number is lower than the 47 percent recorded in 2023, 80 percent said their franchisees had unfulfilled job vacancies.
Apart from the cost and quality of labor, 11 percent cited government regulations as part of the major challenges. Meanwhile, each franchisor came up with solutions to fix their problems. For example, 61 percent adjusted their wages to fix labor issues, while 57 percent opted to change benefits.
