Report predicts continued rebound and growth in franchising
The U.S. franchise industry posted a solid uptick in 2021, according to FRANdata’s 2022 Franchising Economic Outlook report. The total economic output that franchises generated in 2021 increased by 16.3%, to $787.7 billion. Several factors helped last year’s rebound: Covid-19 vaccines, government stimulus programs, pent-up demand for consumer goods, and massive household savings.
Franchising looks to continue its recovery in 2022 with help from an improving labor market and sustained buying urges by Americans. The report, which is released by the International Franchise Association but compiled independently, makes projections for 2022 and posts comparative figures for 2020 and 2021.
Franchise Growth in 2022
Franchises’ portion of the gross domestic product (GDP) will stay at 3% this year, a total of $501 billion, the FRANdata report predicts. Franchise growth in 2022 is likely to stabilize, with the industry expanding by 2.2%. That means the U.S. will have 792,014 franchise establishments, exceeding its 2021 total by 17,000.
The FRANdata report anticipated that the fastest-growing types of franchise businesses, in raw numbers, during 2022 would be in the personal-care sector, as U.S. consumers normalize their spending; its expansion will be at a rate of 3.1%. The commercial and residential services sector will be second, according to the report, with anticipated growth of 2.7%; the report attributed this spike to the strength of the housing market. Full-service restaurants should gain 2.5%; quick service restaurants QSRs, 2.1%; and lodging, 1.3%.
Texas is expected to see more franchise growth than any other state, according to the report. After Texas, the top 10 states in terms of net franchise locations gains will likely be Florida, Arizona, South Carolina, Idaho, Tennessee, North Carolina, Montana, Nebraska and Nevada.
U.S. Labor Market and Franchising
Total U.S. employment is still 3.6 million jobs short of pre-pandemic totals, the report says, because of reduced labor force participation. This has partly been driven by many workers voluntarily quitting (the so-called Great Resignation) and also by workers’ finding it impossible to work because of pandemic-induced reasons, such as childcare challenges or Covid-related health concerns. By year-end, the FRANdata report foresees an unemployment rate of approximately 3.5%, back to pre-pandemic levels.
In early 2021, franchise owners scrambled to find qualified workers to fill job openings, sometimes paying signing bonuses or paying candidates just to show up for interviews. Nevertheless, franchises hired 8.2 million employees by the end of 2021, adding a net 660,300 jobs.
The report’s overview of the U.S. labor market cites “an extraordinary year in 2021. With 6.4 million new jobs, more than any other year in history, the unemployment rate dropped to 3.9% in December of 2021, down significantly from the December 2020 rate of 6.7%, a trend likely to continue” in 2022.
Franchise Employment Gains
As you might expect, employment in franchise business segments most slammed by the pandemic in 2020 are those that are expected to rebound strongly this year. In 2020, employment in the lodging segment of franchising fell 32.6 percent, rebounded by 30.2% (estimated) in 2021 and should surge another 6.8 percent this year, the report stated. Personal services, which posted a negative 13.1% in employment during 2020, came back by 11% last year and should come up another 4.7% in 2022.
QSRs had a fall-off of 8.7% in 2020, but went positive by 5.2% (estimated) in 2021 and are projected to bump up 2.2% in 2022. Full-service restaurants went 17.4% negative in 2020, but rebounded by 14.9% (estimated) last year and should add 3.3% more employment this year.
Franchise workers at various levels saw their paychecks grow during 2021. Hourly workers saw 4.7% pay hikes; other employees’ compensation increased 9.2%. To take a deeper dive into the franchise industry’s growth, plus the firm numbers for 2020, estimates for 2021, and projections for this year, check out the 36-page FRANdata report.