Franchise Industry Overview

The franchise industry projects an annual economic output of nearly $7.4 billion in 2011, up 4.7 % over 2010, coupled with gains in numbers of establishments and jobs as we continue to recover from the “Great Recession.”

Indeed, according to the International Franchise Association, U.S. franchise businesses are expected to expand at their fastest rate since 2007. It is estimated that the number of franchise establishments will increase 2.5% to 784,802 in 2011. Direct jobs will also grow 2.5%, to 7,808,000, with 194,000 new jobs created.

Lodging is expected to see the greatest increase in employment in 2011, at 4.4%, while Business Services is the only of the 10 franchise business lines expected to experience a modest decrease in employment. Economic output is expected to grow 4.7% to $739.9 billion, and forecasts show it increasing in all 10 lines of franchise business.

This overall improvement is good for the franchise sector as well as for the overall U.S. economy, as small business ‘contributes greatly to job creation in the U.S.’ Challenges most notably include slower growth due to continued difficulty for franchise businesses struggling with credit access.

Technology companies looking to sell into the franchise industry take note: this industry appears to be rebounding healthily, and shows some robust numbers. Comparing economic output between the franchise sector and all businesses, according, again, to IFA, we see franchise moving from 3.4% in ‘09/’10 to 4.7% in ‘10/’11, where ‘all business’ moved from 4.3% to 4% in the same period. Note: Though from ’09 to ’10 it appears franchise was harder-hit by the recession than was ‘all business,’ franchise looks to be rebounding faster. In terms of employment over the same timeframe, franchise moved from .6% to 2.5%, while ‘all business’ moved from -.6% to 1.7%. Note: Though ‘other business’ shows a slightly more vertical trajectory here than does franchise, keep in mind that continued credit challenges are a limiting factor in the speedy growth of the franchise sector. Franchise has performed consistently better than ‘all business’ at least as far back as ’07, the new ‘base year’ for which comprehensive estimates of franchise business activity are available.

The franchise industry represents a significant opportunity for technology companies. Since 2007, franchisors have been recognizing significant operational efficiencies, cost savings, and enhanced customer experiences by implementing a wide range of in- and above-store technologies. The in-store technology includes front office solutions such as point-of-sale as well as back office solutions such as financial management. Above the store level, franchisors and master franchisees have additional needs for advanced solutions like VPN, supply chain and business intelligence to name a few. And like all industries, high speed networking and lower cost technology solutions combined with intense competition are driving rapid change and continual investments in new technology. Two current industry trends are self-service (kiosks, online ordering) and digital signage.

Frantz Group works with franchisors and technology vendors to ensure rapid adoption of critical new technology by franchisees. Because of key investments we’ve made (such as our optimized CRM solution) and our willingness to work outside-the-box (for Church’s Chicken, we built a wildly unique and very extensive restaurant database) we have closed more than $100 million in revenue for our clients at an attractive expense to revenue ratio.

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