In 2009, Restaurants Will Be the Bright Spot in Franchising. Sort of.
January 9, 2009 by Sean Kelly
Filed under Business
According to an International Franchise Association Educational Foundation report released Wednesday, restaurants are one of few franchised businesses expected to expand, even if only slightly, during the economic downturn.
An article on the study in Nations Restaurant News reported:
The franchise industry this year is expecting a decline as a whole — by the number of establishments, jobs and economic output — but a 1.5 percent increase in the number of quick-service restaurants and a 1.3 percent increase in the number of table, or full-service, restaurants is expected in 2009. The IFA report, The Franchise Business Economic Outlook for 2009, was prepared by PricewaterhouseCoopers LLP.
The report foretells of tough times to come. Across the board, the number of franchise establishments is expected to decline by 1.2 percent in 2009, from nearly 865,000 to less than 855,000, according to the report. Industry research firm FRANdata predicts that borrowing by franchises will fall by about 27 percent in 2009 compared with the previous year.
Jobs in franchise businesses are expected to fall by 2.1 percent, for a loss of 207,000 jobs. The overall economic output of the goods and services produced by franchise businesses is predicted to decline by 0.5 percent, or a loss of $4.2 billion, in 2009.
Franchise industry leaders, however, are maintaining their optimism:
“Franchising industry veterans know that the current conditions, although extremely challenging, are temporary,” said Matthew Shay, IFA president and chief executive. “Our survey shows that franchise business leaders have confidence in the entrepreneurial spirit of their franchisees and the fundamentals of the franchise business model as factors that will help them weather the economic storm.”
According to the IFA’s report, the worst franchising sectors to to be hit by the recession are predicted to be the automotive, retail food and retail products/ services sectors, with employment in those areas expected to drop by more than 5 percent. Sectors that are projected to see the largest percentage reduction in economic output are lodging (3.2 percent), business services, (2.8 percent) and real estate (2.1 percent).
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I, personally, would be very careful about accepting any of the statistics produced by the IFA Educational Foundation because the IFA is a lobbying organization that has its way with the Congress and the regulators.
Franchising has been so successful these last thirty years because of ineffective regulation and oversight and the ability of franchisors to churn the appearance of great viability of their concepts to new buyers.
Franchisors, in my opinion, ignore the fundamental ECONOMIC concept of “supply and demand” and work on the premise that markets are infinite because franchisees are infinite in the scheme of things. Saturation of markets in the interests of cash flow is the goal of the franchisors.
LET THE BUYER BEWARE! In 2009, people will not be eating out to the extent that they ate out in 2007 and 2008. Want to bet?
I hope they aren’t showing this article to VETS and their families who, because of the Patriot Express Loan Initiative passed in 2007, are now the targets of the QSR franchisors who want to at least maintain THEIR cash flows in the Recession —especially if they borrowed against them.