Trends in Franchising
From 2001 to 2005, the franchising sector grew at a faster pace than many other sectors of the U.S. economy . Direct economic output expanded by over 41% from $625 billion to $881 billion, while economic output of other businesses grew by 26%, from $16 trillion to $20.1 trillion. Employment generated by franchised businesses grew by 12.6%, from 9.79 million to 11 million, compared to 3.5% for all businesses, from 132 million to 136.7 million. Payroll generated by franchised businesses grew 21.6% compared to 15.4% for all businesses.
McDonald's Franchise
Franchising is the practice of using another firm's successful business model.
The International Franchise Association reported that 2012 would be the year that franchising rebounds. In its Franchise Business Economic Outlook for 2012, the IFA stated, "after three years of restrained growth, due to the recession and its lingering effects, franchise businesses show signs of recovery in the year ahead. " The IFA went on to state that "franchise business growth has been restrained over the past three years due to underlying factors, such as the weak rebound in consumer spending, that have been a drag on the economy as a whole. In addition, tighter credit standards have limited the formation of new franchise small businesses and the expansion of existing businesses. "
Every six months the IFA puts out a statement about how the tight lending standards are retarding the growth of franchising. While that is undoubtedly true, it would be helpful to learn exactly what the IFA deems as the optimal level of liquidity in the system. If the IFA is silently longing for the loose credit standards that reigned supreme in the middle of the last decade then that perhaps is the wrong path down which to proceed. If it is not, then it is incumbent upon the leadership to set forth with more particularity the goals because liquidity in the system is inextricably linked to the franchise growth projections. And if that is the case, then the growth rate that was experienced in the years leading up to the Great Recession cannot be the benchmark for growth in the next decade.
The economic outlook published for 2012 projects an increase of 1.9% in franchise establishments. But as stated above, the one constant with the economic outlooks produced by the IFA over the last four years is that each year the reports change many of the figures stated in the report of the previous year. The reports do have a convenient escape mechanism in that all of the reports state that the numbers are "estimates. " In other words, neither the IFA nor the high powered accounting and consulting firms commissioned to compile the reports know conclusively how many franchise establishments exist today. If you read the reports carefully you will see that the PWC reports state that 2007 was the first time that there was enough data to even put forth a sound estimate. So while 1.9% may well be the appropriate and realistic growth rate for 2012, given the track record of the reports put forth by the IFA, franchisers must be more than a little skeptical about the numbers that they provide.