News

Franchise growth expected to be flat for remainder of 2013

June 6, 2013

The franchise sector will continue to outperform the economy as a whole and grow at a slightly faster rate than other businesses, but the rate of growth remains unchanged from the 1st quarter 2013 forecast, according to IFA's 2nd quarter update to The Economic Outlook for Franchise Businesses report prepared by IHS Global Insight for the IFA Educational Foundation.

IFA CEO Steve Caldeira said there are concerns about headwinds in the industry that are expected to hold back franchise development and job creation from its full potential.

In particular, Caldeira pointed to the complexity of the tax code, which he says creates an uneven playing field for the subchapter S-corporations and LLCs, which make up a bulk of the franchise industry, who may pay a higher effective tax rate than larger businesses paying taxes under the corporate code.

"Congress should address the challenges small businesses face with the current tax code in a comprehensive manner, not in a piecemeal approach, and commit to reforming both the corporate and individual codes as swiftly as possible," he said.

Also, according to the forecast:

• The number of franchise establishments in the U.S. will increase by 1.5 percent in 2013.
• The number of jobs in franchise establishments will increase 2.0 percent in 2013, following a gain of 2.2 percent in 2012.
• The output of franchise establishments in nominal dollars in 2013 will increase 4.3 percent, following a 4.9 percent increase in 2012.
• The gross domestic product (GDP) of the franchise sector is projected to increase to $472 billion in 2013. This is approximately 3.4 percent of U.S. GDP in nominal dollars.

The QSR segment, the largest franchise business line, is predicted to rank third in the growth of output and will see growth rates of employment and new businesses that are at or above the franchise sector average.

Growth of full-service restaurant sales industry-wide slowed in the first quarter, and the 2013 forecast for that franchise business line was revised downward slightly.

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