Franchise Growth Rates to Remain Flat in Second Half of Year
FOR IMMEDIATE RELEASE
FRANCHISE GROWTH RATES TO REMAIN FLAT IN SECOND HALF OF YEAR
Comprehensive Tax Reform Would Accelerate Growth Rates Moving Forward
WASHINGTON, June 5, 2013—The franchise sector will continue to outperform the economy as a whole and grow at a slightly faster rate than other businesses, but the rate of growth remains unchanged from the 1 stquarter 2013 forecast, according to IFA’s 2 ndquarter update to The Economic Outlook for Franchise Businesses report prepared by IHS Global Insight for the IFA Educational Foundation.
“Franchise growth continues to outpace other sectors of the economy as franchising remains the fastest way to grow and scale a business, despite the still uneven economic recovery and the onerous public policy environment facing our members and the small business community,” said IFA President & CEO Steve Caldeira. “We are concerned the headwinds facing the industry continue to hold back franchise development and job creation from its full potential.”
In particular, Caldeira explained that the complexity of the tax code creates an uneven playing field for the subchapter S-corporations and LLCs, which make up the lion’s share of the franchise industry, who may pay a higher effective tax rate than larger businesses paying taxes under the corporate code. “Congress should address the challenges small businesses face with the current tax code in a comprehensive manner, not in a piecemeal approach, and commit to reforming both the corporate and individual codes as swiftly as possible,” he said.
According to the forecast:
- The number of franchise establishments in the United States will increase by 1.5 percent in 2013.
- The number of jobs in franchise establishments will increase 2.0 percent in 2013, following a gain of 2.2 percent in 2012.
- The output of franchise establishments in nominal dollars in 2013 will increase 4.3 percent, following a 4.9 percent increase in 2012.
- The gross domestic product (GDP) of the franchise sector is projected to increase to $472 billion in 2013. This is approximately 3.4 percent of U.S. GDP in nominal dollars.
“We continue to expect that the economy is headed for another ‘spring swoon,’ this time brought on by the federal government’s spending sequester,” said James Gillula, managing director, consulting for IHS Global Insight. “The primary sources of the expected slow pace of GDP growth in 2013 will have a less direct impact on the franchise sector, and we expect the franchise sector will continue to outperform within many of the industries where franchises are concentrated.”
The analysis is based on a grouping of franchise businesses in 10 broad business lines. Highlights of the industry forecast include:
- Business Services and Commercial & Residential Services will rank as the top two sectors in both franchise employment growth and growth of the number of establishments in 2013.
- Real Estate will rank first in output growth and will be among the top three in franchise growth for establishments and employment. The forecast for the Real Estate franchise sector has been revised upwards since March given the more rapid than anticipated improvement in housing market activity.
- Quick Service Restaurants – the largest franchise business line – will rank third in the growth of output and will see growth rates of employment and new businesses that are at or above the franchise sector average. Growth of full-service restaurant sales industry-wide slowed in the first quarter, and the 2013 forecast for that franchise business line was revised downward slightly.
About the International Franchise Association
The International Franchise Association is the world's oldest and largest organization representing franchising worldwide. Celebrating over 50 years of excellence, education and advocacy, IFA works through its government relations and public policy, media relations and educational programs to protect, enhance and promote franchising. Through its media awareness campaign highlighting the theme, Franchising: Building Local Businesses, One Opportunity at a Time, IFA promotes the economic impact of the more than 825,000 franchise establishments, which support nearly 18 million jobs and $2.1 trillion of economic output for the U.S. economy. IFA members include franchise companies in over 300 different business format categories, individual franchisees and companies that support the industry in marketing, law and business development.