The franchise trade expects a rebound when Covid is underneath management
A worker puts hot peppers on a pizza in a Domino’s pizza franchise in New York.
Daniel Acker | Bloomberg | Getty Images
After a year of business closings, disruptions and unprecedented challenges, the franchise industry is poised to return to pre-pandemic levels by the end of the year, if Covid-19 is controlled, according to an upcoming report.
In its annual economic outlook, the International Franchise Association estimates that more than 26,000 franchise locations will be added, an increase of 3.5% for more than 780,000 establishments. The additions would help offset the declines seen over the past year.
In addition, franchise employment is expected to grow more than 10% to nearly 8.3 million workers, the group said. It added that of the nearly 800,000 new jobs expected, many will be in the retail, food and services sectors.
The IFA forecast produced by the research and consulting firm FRANdata assumes that the gross domestic product of the sector will increase by 7% to USD 477.4 billion and the production of the franchise business will increase by 16.4% to USD 780 billion which will also make up for last year’s losses. In 2020, the franchise lost approximately 20,000 units and saw employment fall 11.2% to 7.5 million workers due to losses in housing, full-service restaurants, and personal services.
“With rapid adaptability, scalable technology, and a focus on products and services in demand, the franchise sector has demonstrated its resilience time and again. Coupled with smart Washington policies, franchises can help Americans get back to work.” Robert Cresanti, President and CEO of IFA, told CNBC in a statement.
Most of the growth this year will come from the commercial and residential service industries, along with the continued strength of the quick service restaurant category that got a boost last year. The strength of the rebound will depend on a number of factors including pandemic control, the launch of the vaccine, and pent-up consumer demand.
“It’s important to understand that once everyone gets the green light, there won’t be just this explosive growth,” said Darrell Johnson, FRANdata CEO. “The world has changed and, in some ways, consumer behavior has changed significantly so that it is a different growth.”
As an example, Johnson cited the huge growth in home delivery and roadside pickup in fast food restaurants. He said these services were “forced into the equation” because it was the only way consumers could buy products.
The industry’s recovery also depends on government measures to support both small businesses and the economy as a whole.
President Joe Biden’s $ 1.9 trillion stimulus plan includes aid to small businesses in the form of grants and funding, and direct controls on individuals. Congress Democrats are also working to allocate $ 25 billion specifically for restaurants.
The Paycheck Protection Program has been a lifeline for many small businesses who have had access to finance. The Small Business Administration reported that just under 1.7 million loans for nearly $ 126 billion had been approved as of February 15.
The average loan was $ 75,000 as smaller businesses have access to grants, but 1.17 million were second draw loans for those who received help at the beginning of the cycle and are back on the program.
According to the IFA report, almost half of all franchisees are operators with one or two units. These include a number of minority-owned companies as well as companies that operate in underserved communities. Help is important as these small businesses are at greatest risk of closure.
“There are companies that benefited from the first round of PPP that kept them alive. They got a second round of PPP because they were really still injured, and that’s why they were kept alive. The question What is the long-term forecast for these companies? “said Johnson. “And therein lies the puzzle for policy makers.”
Another factor driving the recovery is government policies such as raising the federal minimum wage, according to the report. The IFA warned of Biden’s plan to raise the federal minimum wage to $ 15 an hour by 2025, warning that doing so could slow the recovery and lead to more automation.
The National Restaurant Association released data reflecting that assessment Tuesday. 82% of operators expect any initial wage increases to affect recovery from Covid-19.
“Passing this bill this year would result in job losses and increased use of labor-reducing equipment and technology,” said Sean Kennedy, executive vice president of public affairs for the restaurant trade group, in a statement. “Almost all restaurant operators say they will raise menu prices, but it is clear that an increase in consumer prices is not enough to absorb higher labor costs.”