New IFA/FRANdata Report Anticipates Greatest Growth in Personal Services and Fast-Food Sectors
Despite economic uneasiness from ongoing inflation, labor shortages and supply chain problems, the franchise industry remained healthy last year and most sectors are expected to grow steadily in 2023, according to the 2023 Franchising Economic Outlook Report. Released Tuesday by the International Franchise Association, this report is prepared by independent marketing research organization FRANdata.
In 2022, total franchised units grew 2% to a total of 790,492. The report concludes that this growth was supported by increased consumer spending, a strong labor market and healthy financial institutions. The report projects that franchisee-owned businesses will increase by 15,000 units, to a total of roughly 805,000 this year.
Franchising will grow by about 254,000 jobs, a 3% increase over 2022. With the addition of those new jobs, franchise industry employees will hold down 8.7 million jobs in the United States.
Bright Outlook for QSRs, Personal Services
Quick-service restaurants (QSRs), personal services businesses, and commercial and residential services led last year’s growth in franchise industry “output,” which is the measure of total economic activity. In 2023, QSRs and personal services are likely to lead in output growth, according to the report.
FRANdata forecasts that personal services will experience the greatest growth in the number of establishments as well as output in 2023. The personal services industry includes health and fitness centers, beauty-related studios, and in-home health care. Personal services output should jump by 6.7%, the report said. The number of these establishments is predicted to increase by 2.5% to 120,302 locations.
The output of QSRs, the fast-food sector, will increase in 2023 by an estimated 5.1%, the report predicted. In addition, QSR employment is projected to increase by 3.5% to a total of about 3.9 million employees. QSRs are expected to account for 45.3% of all franchise employment this year.
Labor Challenges
Despite the overall optimism of the report, the small pool of qualified labor and rising labor costs will remain the biggest challenges for nearly all franchisees. According to the IFA/FRANdata 2023 labor survey, 81% of franchised brands experienced constrained growth due to labor challenges, a continuation from 2022.
The labor shortage has led to wage hikes. The 2023 Economic Outlook Report notes that by February 2023, the average hourly wage had reached 4.6% to $33.09. In February 2022, the average hourly wage was $31.63.
The report also warned that financial institutions are likely to be stingy with loans in 2023. The federal government’s Paycheck Protection Program and Employee Retention Credit benefits kept many shaky businesses afloat. Lenders have become more risk-averse and will closely evaluate “the viability of the business model, cash flow, support offered by a franchisor to franchisees and the financial impact of any delays in opening new locations,” the report states.
Another caveat in the report relates to mortgage rate increases and high home prices that led to pessimism regarding the real estate sector. Considering reduced overall transactions and demand in the industry, FRANdata expects that 2023 will be a slow year for housing inspection services, real estate brokers, appraisers and property management services.
Highlights of FRANdata Report
The 2023 Franchising Economic Outlook distills the industry’s performance from every state plus Washington, D.C., for 2022 and presents its forecast for this year. The new report reviews eight major business sectors and examines trends within regions. It also analyzes the direction of the national economy. Following are a few additional highlights from the report:
- The output of franchisee-owned businesses will rise by 4.2% to $860.1 billion in 2023. In 2022, the total was $825.4 billion.
- As in 2022, franchises’ share of the nation’s gross domestic product will stay at 3%.
- Texas is expected to experience the most growth in franchise activity in 2023. Arizona, Colorado, Florida, Georgia, Illinois, Indiana, North Carolina, South Carolina and Tennessee will join Texas to round out the top 10 states in franchise growth in 2023.
- Growth in the South will outpace the rest of the U.S. franchise market.
- The Southeast, which already has the nation’s largest concentration of franchisee-owned businesses, will have an estimated 234,079 total establishments by 2023. Those businesses will have 2.5 million employees and add $250 billion in output.
IFA members can register here to join an exclusive virtual briefing that will drill down into the 2023 Franchising Economic Outlook report. It’s being held 2:30 to 3:30 p.m. Eastern time on Tuesday, April 4.