Franchise growth expected as recession lingers, expert says
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As he prepares for a new gubernatorial campaign next year, Stamford Mayor Dannel Malloy will doubtless frequent more than a few diners to make his case to Connecticut voters.
Make that dining franchises.
On the eve of announcing plans to run for governor in 2010, Malloy joined 10 colleagues in the U.S. Conference of Mayors to create the Franchising and Small Business in Cities Task Force. The panel is chaired by Trenton, N.J. Mayor Doug Palmer, who is the immediate past president of the conference, and held its first meeting last month in Washington, D.C.
As Malloy explores the mindset of franchisors and franchisees, he might do well to touch base with Stephen Lehman, a Fairfield resident whose EZMatchfranchising.com Web site helps companies pair franchise opportunities with prospective entrepreneurs through assessments administered online.
For every franchise business that seems a ready fit for a professional manager whose job is lost or in jeopardy, there is another that many might overlook, such as the DoodyCalls pet waste removal service that many might sidestep.
Either way, Lehman expects an increase in franchising inquiries as the recession deepens and corporate managers look for new income sources in a tight job market.
“A lot more people now are looking at jobs (outside) Corporate America,” Lehman said. “Franchising usually grows in this kind of cycle.”
The question remains how many people are willing to take on the debt to launch a franchise in such an uncertain economy, as businesses of all stripes struggle to hit their numbers. Borrowing by franchises will drop 27 percent this year, according to a recent study by Franchise Information Services Inc. of Arlington, Va.
According to the International Franchise Association (IFA), after the 2001 economic downturn economic output of franchise businesses grew 40 percent compared with 26 percent for all other business sectors; and jobs grew 12.5 percent compared with 3.5 percent.
This is not 2001, however, when consumer spending buoyed the economy until businesses got back on track. PricewaterhouseCoopers LLP (PWC) recently predicted a net loss of 10,000 franchise establishments this year, 1.2 percent of the U.S. total; and a loss of 207,000 jobs in the sector, a 2.1 percent drop.
Any mirroring of those numbers locally would have a significant impact on Connecticut”™s economy; as of 2005, the state had 9,450 franchise establishments which employed 110,500 people, according to estimates by PWC based on the most recent information available.
In the short term, auto-related and convenience store franchises are most at risk, according to PWC, which predicts a decline in revenue of a full 5 percent for the sectors. In addition, franchises addressing business services should see their output decline by 2.8 percent.
As the franchising industry gathers this week in San Diego for IFA”™s annual convention, another statistic from PWC”™s survey shows that Malloy could do worse than to launch his governor”™s campaign at a local burger joint: perhaps surprisingly, the lone growth area expected in franchising will be the restaurant sector, expected to have between a 1.3 percent and 1.5 percent increase in establishments on a net basis.