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U.S. Franchise Growth Outpaces Other Business Sectors, New Study Finds

Apr 15 2008 9:04AM

John Reynolds--Franchising World

To indicate economic size in a different way, franchised businesses provided more jobs in 2005 than all manufacturers of durable goods, such as computers, cars, trucks, planes, communications equipment, primary metals, wood products and instruments.

Franchised small businesses generated more jobs between 2001 and 2005 than several of the nation's major economic sectors, including durable goods manufacturers, according to new research released recently by the International Franchise Association Educational Foundation. Conducted by PricewaterhouseCoopers, the study is the second comprehensive look at the franchising industry prepared by the research firm. The inaugural study was released in 2004.

IFA, meeting in Orlando for its 48th annual convention, unveiled the study results before a gathering of more than 3,000 franchising professionals whose daily involvement drives the industry's expansion.

Economic Impact Significant

While growth in the number of establishments was only slightly greater than other business sectors, the increase in jobs, payroll, and economic output was significantly higher. Direct economic output of franchises grew by more than 40 percent to $800 billion in 2005 from $625 billion in 2001, while economic output of all businesses grew by 26 percent to $20.1 trillion from $16 trillion.

Job Growth Gaining

Employment generated by franchises grew by more than 12 percent to 11 million in 2005 from 9.7 million in 2001, while jobs in all businesses grew by only 3.5 percent, from 132 million to 136.7 million.

The rate of growth in employment was three times higher than the rate of other small businesses. In 2005, franchised businesses accounted for slightly more than 8 percent of the nation's total private-sector employment. Franchised businesses provided more jobs in 2005 than many other business sectors including durable goods manufacturing, financial activities, and construction.

Payroll among the popular branded enterprises also grew at a faster pace than other businesses, expanding nearly 22 percent to $279 billion in 2005 from $229 billion in 2001. In comparison, payrolls among all businesses rose 15.4 percent from $4.56 trillion to $5.26 trillion.

When the purchases of products and services by franchised business from other businesses are included in the calculations, franchises generated $2.3 trillion of economic output in 2005, 11.4 percent of the U.S. private-sector economy. This combined economic activity generated 21 million jobs for Americans, comprising 15.3 percent of all private-sector jobs.

Franchised Units Nearing 1 Million

The nation's more than 900,000 franchised businesses, including both establishments owned by franchisees and those owned by franchisors, amounted to slightly more than 3 percent of all business establishments in 2005.

Franchised businesses today operate in more than 100 lines of business, including health-care and fitness centers, employment agencies, hotels and motels, quick-service restaurants, packing and shipping stores, real estate, automotive shops and many retail businesses.

Private Sector Workforce Added

The nation's franchised businesses are also geographically-dispersed, providing employment for at least 10 percent of the private-sector workforce in every state except New York and the District of Columbia. The average employment rate per state in 2005 was 15-3 percent.

The complete 600-page report provides charts and breakouts by business sector, state and Congressional District is available at www.franchise.org.