Franchise Statistics: Reflecting on 2019 Results and the 2020 Outlook
According to FRANdata, a franchise-focused research and advisory company, “locally-owned franchises are America’s hidden small businesses.” This statement is from a 2019 year-end report, Franchise Business Economic Outlook, that was created by FRANdata for the International Franchise Association and they have the data to back it up.
The franchising industry is responsible for about 3% of total GDP. Growth in the industry was expected to outpace U.S nominal GDP growth rate in 2020, though this projection was made prior to the pandemic. Final results have yet to be seen as most franchise data is only reported annually.
While we await actual 2020 results – and before we speculate how franchise industry performance was impacted by the coronavirus — we wanted to reflect back on the results from 2019 and the expected trajectory based on 2020 projections.
2019 Results by the Numbers:
- 773,600 total franchise establishments
- 8.4 million people employed
- $787.5 billion of economic output
- $473.41 billion in GDP
2020 Outlook by the Numbers:
- 785,316 total franchise establishments (1.5% increase)
- 8.67 million people employed (2.8% increase)
- $819.57 billion of economic output (4.1% increase)
- $494.96 billion in GDP (4.6% increase)
Quantifying the aforementioned industry vs. economic GDP growth, the anticipated franchise GDP contribution increase of 4.6% would slightly outpace expected total GDP growth at 4.1%.
The fastest growing franchise types were expected to be personal services, quick service restaurants, and full-service restaurants. This is of particular interest as these types of businesses were some of the hardest hit by restrictions and closures relating to the pandemic.
However, most restaurant establishments adapted by beginning to offer, or ramping up, delivery (whether independently or through food delivery applications) and take-out options. Further, major quick-service restaurant chains like McDonald’s that already relied heavily on drive-through business were largely unimpeded. There may also be advantages inherent in franchising models in general, such as corporate support and wide-scale marketing initiatives, that will keep negative impacts to the business types most impacted to a minimum, or at least below independent businesses of the same type.
We’ve also seen franchises that have emerged, or adapted quickly, in response to the pandemic. This includes cleaning/sanitation services, mail/package delivery, and home health care franchises. Despite the expectations, franchises like these may very well be the unanticipated winners of 2020.
Franchising growth does not benefit all states evenly. In 2020, the states that were expected to grow the most in terms of the number of establishments and employment, in order, were Texas, Colorado, Arkansas, Florida, Idaho, Tennessee, Georgia, North Carolina, South Carolina, and Nevada. It is highly likely that those from states that never went into full lock down – or had less stringent or enforced restrictions — will fare better than those in states that did. This not only relates to being able to conduct business but also being able to form a new business.
While we wait for the dust of 2020 to settle in order to view the entire picture and impact of a global pandemic and other economic disruptions as it relates to franchises, one thing remains clear: franchising is an important part of our economy. Franchising provides a unique opportunity for entrepreneurial individuals to launch and grow ready-made businesses. They can skip the step of developing and testing a concept and quickly jump into running a business.