Franchise Business Economic Outlook: 2012

The International Franchise Association (IFA) just released their Franchise Business Economic Outlook for 2012, a detailed report that was put together by IHS Global Insight, one of the leading economic analysis and forecasting firms in the world.

According to the report, franchise business growth has been held back over the past three years due to macroeconomic factors, such as the weak rebound in consumer spending, that have been a drag on the economy as a whole. Making matters worse, tighter credit standards have limited the formation of new franchise businesses and the expansion of existing businesses. As these conditions improve, the IHS Global Insight report forecasts an increase in the number of franchise businesses in 2012 and continued modest growth in employment and economic output.

2012 Franchise Business Forecast for Establishments, Employment, and Economic Output

Establishments – The number of franchise establishments in 2012 will increase by 1.9%, from an estimated 735,571 to 749,499. The number of establishments in each business segment is expected to increase in 2012, from a low of 0.1% (Retail Products & Services), to a high of 3.1% (Lodging).

Employment – In 2012, franchise business employment will increase by 2.1%, from 7,934,000 jobs to 8,102,000 jobs. All segments will experience job growth in 2012, with Business Services franchise growth the highest at 3.6%. The two groups that make up 50% of all jobs in the franchising industry — Quick Service Restaurants and Table/Full Service Restaurants — will also experience job growth of 2% and 1.8% respectively.

Economic Output – Output will grow by 5% in 2012 — from $745 billion to $782 billion. Personal Services franchises are expected to be a growth leader in 2012, with 6.2% in output growth, followed by Retail Products and Services at 6.1%. Real Estate will also show growth of 5.8%. However, the industry is starting from a low base and will not reach its 2007 output levels.

IFA Annual Business Leader Survey

The IFA Annual Business Leader Survey, conducted in early December, suggests franchisors and franchisees, frustrated with the slow pace of the recovery, are somewhat less positive about the outlook for the year ahead, compared to one year ago.

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Access to Credit as the Major Hurdle to Franchise Business Growth

Two-thirds of franchisors and 44.4.% of franchisees say they have seen “no improvement in credit access in recent months.”

More than 80% of franchisors and 55.5% of franchisees say that limited access to credit continues to have a negative impact on their ability to expand.

Franchisor Forecast for Number of Establishments, Consumer Sales, and Jobs in 2012

Nearly 85% of franchisors say they plan to increase the number of establishments in 2012, with 34.9% saying they plan increases of 6% or more.

No franchisors expect a significant decrease in the number of businesses and 4.7% expect a moderate decrease (less than 6%).

77% of franchisors expect some increase in consumer sales, compared to 81.4% of franchisors one year ago.

No franchisors expect a sales decrease in the coming year, compared to 4.5% who expected sales to decrease in the 2010 survey.

54% of franchisors say they expect to increase employment, with 18.4% saying they expect a significant increase (6% or more). One year ago, 53% of franchisors said they expected to increase employment, with 14.2% who said they expected a significant increase.

Franchisee Forecast for Consumer Sales and Number of Jobs in 2012

66.6% of franchisees expect to see moderate to significant increase in sales in 2012. One year ago, 76.4% of franchisees expected to see some increase in same store sales.

No franchisees expect to see a decrease in same store sales in 2012, compared to nearly 12% who expected a sales decrease one year ago.

46.2% of franchisees say they expect to add jobs in the year ahead, with 15.4% saying they expect a significant increase in the number of jobs (6% or more). One year ago, 47.1% said they expected to increase the number of jobs, with 5.9% who said they expected a significant increase.

Miscellaneous Comments from Survey Participants

Franchisors and franchisees alike are frustrated with the slow pace of the economic recovery and the “lack of leadership in Washington, D.C.” that is “making things worse, not better.”

Survey comments revealed frustration with the “lack of support for pro-growth small business policies,” and the “uncertainty created among consumers and investors” by the “negative rhetoric coming out of Washington.”

Weak consumer sales, limited access to credit, energy price increases (especially commodities), and the impending health care law are also major concerns.