Fueled by tax reform, deregulation and an upbeat economy, the franchise industry is set for another year of strong momentum. The International Franchise Association is out with its 2018 Franchise Business Outlook, showing franchise industry expansion is set to grow for the eighth year in a row.
Franchise establishments are set to grow by 1.9 percent to 759,000 locations after increasing 1.6 percent in 2017, while employment will increase 3.7 percent to 8.1 million workers after growing 3.1 percent in 2017. The gross domestic product of the sector is forecast to increase by 6.1 percent to $451 billion, and will contribute approximately 3 percent of U.S. GDP in nominal dollars, according to the report. Franchise business output will also increase 6.2 percent to $757 billion. The forecast follows a year of slower growth in 2017, mirroring trends seen the year prior in terms of employment and output.
IFA, the franchise industry’s largest trade group, says Congress and the Trump Administration’s work in removing regulatory barriers and stimulating the economy have helped to encourage growth.
“Regulations have been trimmed, taxes have been cut, and, as a result, the franchise community has continued its economic momentum. As we move into 2018, we expect lawmakers will remain steadfast in their support for a strong business environment,” said Robert Cresanti, IFA President and CEO in a statement. “Franchises will thrive and continue to strengthen the American economy by providing jobs in every community, playing an important role in the lives of Americans, and supporting a variety of job creating industries, from manufacturing to agriculture.”
In terms of the types of establishments seeing the most success, personal-service franchises experienced strong growth in 2017 and the category is projected to rank first in growth for establishments and employment in 2018.
The IFA projects states in the south and west will continue to lead the nation in both employment and output growth in the next year, thanks to trends including high growth in payrolls and above-average gains in population. Nevada will be the top state for employment and output franchise growth, followed by Utah.
Tax reform in particular has franchisors like James Creel, president and CEO of Taco John’s feeling optimistic in the new year. Not only will the company and its franchisees get a tax break — consumers will seemingly have more cash on hand to spend and potentially boost the company’s bottom line.
“The tax cut will put more money in consumers’ pockets and that will directly benefit the restaurant industry,” Creel said. “We’re optimistic this will be a good year for us.”
The company’s locations are heavily concentrated in the Midwest, and after a slow start to the year, Creel said there was an uptick in business from November on. But despite his sunny outlook, Creel says there’s one major headwind the industry is facing — minimum wage increases at the state and local level.
“The thing that is scariest for the industry is the minimum wage,” he said. “We think it will have an impact of about 1 percent on our bottom line. Our franchisees do express a lot of concern about it.”
Kate Rogers – CNBC