Two New IFA Reports Forecast Continued Resilience for Franchised Businesses in 2024

The International Franchise Association (IFA) released its annual Franchising Economic Outlook report last week, showing that franchise growth exceeded projections for 2023, even in the face of ongoing economic uncertainty. On top of the 2.2% growth experienced in 2023, the report forecasts that franchises will grow an additional 1.9% in 2024, adding 15,000 units and 221,000 jobs in the U.S. The IFA also released the findings from its 2024 Franchisor Survey detailing the challenges posed by the labor market, rising prices, and policy trends.

“More than anything, these reports demonstrate the resilience of the franchise business model,” said Matthew Haller, IFA President and CEO. “Even in the face of macroeconomic factors like high inflation, labor availability and the cost of capital, franchised businesses continue to outpace the growth of the broader economy. For those considering a franchise investment or IFA members growing their brands, franchising continues to be a major driver of economic growth and small-business creation.”

Conducted by FRANdata, an industry-leading research and analytical firm, the Franchising Economic Outlook is the IFA’s annual study detailing the franchise sector’s performance for the past year and projected economic outlook for the year ahead, as well as an in-depth state outlook for all 50 states and Washington, D.C.

“The data shows franchising continues to exceed economic expectations,” said Darrell Johnson, CEO of FRANdata. “Even amid rising interest rates, franchising grew ahead of our projections. With continuing inflation and labor challenges, a U.S. presidential election, geopolitical tensions, and technological advances in artificial intelligence, 2024 should be a transition year for the U.S. economy, but franchising continues to stand out.”

Key findings from the report include:

• The number of franchise establishments will increase by more than 15,000 units, or 1.9%, to 821,000 units. Franchising exceeded FRANdata’s projections for 2023, with establishments estimated to have grown by 2.2% compared with the 1.9% previously forecasted, and topped, if only barely, the 1.8% growth rate recorded for 2021 to 2022.
• Franchising is expected to add approximately 221,000 jobs in 2024 and bring the total number of U.S. franchise employees to 8.9 million.
• Total franchise output will increase by 4.1%, from $858.5 billion in 2023 to $893.9 billion in 2024.
• Personal services and quick service restaurants (QSRs) will experience the strongest growth of any industry.
• Growth in the Southeast and Southwest will outpace the rest of the U.S. franchise market in 2024. The top 10 states for franchise growth are Texas, Florida, Georgia, North Carolina, South Carolina, Tennessee, Maryland, Arizona, Colorado, and Virginia. California and Washington were at the bottom of the list, with units forecasted to shrink by 4.2% and 2.3%, respectively.

In addition to the Economic Outlook, the 2024 Franchisor Survey highlighted the continued economic challenges facing franchising. Despite these economic headwinds, the forecasted growth reinforces the franchise sector’s enduring strength. This survey revealed the following:

• 80% of respondents reported that their franchises have unfilled job vacancies.
• Inflation, the third leading business challenge, dropped in rank, with only 9% of respondents citing it as their primary concern, down from 20% the previous year.
• 34% of businesses cited the cost and quality of labor as their number-one business challenge, down from 47% in 2023.
• Franchisors are highly concerned that the relationship with franchisees will change because of the Biden administration’s new joint employer standard, with 74% citing a high level of concern.
• 81% of the respondents increased wages in the past 6 months, but only 61% are planning to increase in the next 6 months, citing ongoing regulatory uncertainty.
• Rising prices, including higher wages, have led to margin compression. Emerging challenges for the year ahead include the cost of financing and weakening consumer demand.

For more information, contact Katherine Knight Patterson at kpatterson@franchise.org or 202-662-0783.