2023: A Year of Growth for Franchises
Amid recent headlines sharing mixed reviews of the economy, the IFA and FranDATA’s 2023 Franchising Economic Report projects modest growth for franchises in the year ahead. Despite rising inflation rates and industry layoffs, there are bright spots in the economy. The economy’s resilience is apparent, as both the Labor Department’s strong growth rate and low 3.4% unemployment rate, and Consumer Report Index’s report of slowing inflation suggest. In the current economic climate, franchising options remain appealing to entrepreneurs and business buyers due to the proven business model, brand recognition, favorable financing, and reduced risk.
Factors Driving Franchise Growth
While economists debate whether the U.S. will see a recession this year or manage to pull off a soft landing, the modest growth projected for the franchise sector is predicated on a few factors. In a time of uncertainty, franchising offers a proven business model for buyers and entrepreneurs, reducing the risk associated with starting a new business. Franchisors offer support and training, setting new franchisees up for success. As customer preferences and market demands adapt to current economic circumstances, franchising increasingly looks like a viable option for entrepreneurship in 2023. As people seek convenience and quality, while being mindful of spending, franchises that cater to service sectors such as food and beverage and personal services are well-positioned for growth. The 2023 Franchise Economic Report spotlights the economic growth franchising will bring at the national, regional, and state levels.
Regional Growth
Franchises in the United States are predicted to experience conservative growth in 2023, with outcomes varying across different geographic regions. While every region will see expansion, the Southeast and Southwest look to outpace the rest of the country in the year ahead. Thanks to recent population migrations, the South now boasts seven of the top 10 states people are moving to. This has created a strong and resilient labor market, with plenty of franchise opportunities. With 2.9% anticipated growth, the Southwest states of Arizona, New Mexico, Texas, and Oklahoma are projected to also see 4.1% growth in franchise employment and 5.3% growth in franchise output, or the total economic activity.
Industry Outlook
Despite the current economic climate and associated uncertainty, the recession-resistant service industry looks to see substantial growth in 2023. In particular, the personal services and quick serve restaurant sectors look to outpace the service sector with a projected 2. 5% growth. The real estate industry is the only sub-sector looking at negative growth due to higher interest rates and pulled back consumer spending. While labor issues persist, the franchise industry will continue to add new jobs. With projected growth for 2023 at 3%, total franchise employment is forecasted to reach 8.7 million.
Business owners, buyers, and sellers continue to evaluate their options in the current economic climate and the profitable opportunities franchising provides. In BizBuySell’s quarterly Insight Report, 90% of respondents share that they plan to purchase a business in the next year or two, so for business owners looking to exit their business, 2023 is a great time to capitalize on increasing demand.