Franchise Businesses Continue Rapid Growth Despite Concerns

Franchise businesses are growing at a rate faster than any other sector of the economy. And they’re creating jobs at a faster clip, too.

For the fifth consecutive year, 2015 is expected to see another big expansion, according to projections from the International Franchise Association.

The organization recently released its Franchise Business Economic Outlook for the year.

In an official release announcing the report, IFA President and CEO Steve Caldeira said:

“Franchising is a vital engine of economic expansion in the United States and 2015 looks to be another strong year for franchise businesses. With continued job gains, consumer spending will accelerate creating the conditions for another strong year of growth for franchise businesses.”

Some positives outlined in the IFA survey include:

• New Jobs: Franchises are expected to add 247,000 jobs this year. That’s a 2.9 percent increase over 2014’s gains. And it brings the total number of jobs in place at franchise businesses to 8.8 million nationwide.
• More Businesses: About 12,111 more franchise businesses will be opened this year. That’s 1.1 percent more franchises open this year than last.
• Greater Output: With more franchise businesses comes more economic output, the IFA report notes. In 2015, franchise businesses should generate $889 billion in business. That’s a 5.4 percent increase over 2014.
• Growing GDP: The Gross Domestic Product among franchise businesses should grow 5.1 percent this year. The national GDP is expected to grow 4.9 percent, meaning franchise businesses should grow at a faster rate than the economy as a whole.

But despite this momentum, there are reasons for concern.

Already, franchise business owners are reporting negative impacts after the implementation and enforcement of the Affordable Care Act.

Two-thirds of the franchisors and 85 percent of franchisees say they have been negatively impacted by Obamacare.

And recent changes to the minimum wage at the state and local  level have also had an impact on franchise businesses.

The IFA report found that 85 percent of franchisors and franchisees believe that local or state changes to the minimum wage will have a negative impact on their business.

But one of the greatest concerns for franchisers is a recent filing by the National Board of Labor Relations.

The NBLR alleges McDonald’ s Corp. LLC acted as a  “joint employer” with some of its franchisees in 2012 in response to a push by some employees for higher wages. The move attempts to make the company equally responsible for alleged misconduct against employees for union organizing activities at some of the restaurants.

A statement from the NBLR alleges these activities included discriminatory discipline, reduction in hours and, in some cases, discharges. In a statement, the NBLR explains:

“(McDonald’s) engages in sufficient control over its franchisees’ operations, beyond protection of the brand, to make it a putative joint employer with its franchisees. This finding is further supported by McDonald’s, USA, LLC’s nationwide response to franchise employee activities while participating in fast food worker protests to improve their wages and working conditions.”

But, in its report, the IFA responded that the decision left franchisees, small business owners who had bought into the McDonald’s business model, uncertain about where they stood. As Caldeira stated:

“The entire business model of franchising is endangered by this ill-conceived complaint. Hundreds of thousands of franchisees must now operate not knowing whether they should believe what their contracts clearly state, that they are in charge of their own work place practices, including setting wages and hours, or that the corporations from which they license their trademarks are also responsible for those things. The ruling could put the brakes on what looks like a banner year of accelerated growth and job creation in the franchise sector.”

According to the IFA report, 85 percent of those surveyed believed the decision by the federal agency would be “significant.” And many wonder about the implications to other franchises as well.

Growth Photo via Shutterstock

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