Study: Ailing Economy Pinches Franchise Growth

The nation's ailing economic environment is hitting franchises where it hurts.

The International Franchise Association released a report today forecasting that the number of business franchises will decline in 2009 by 1.2 percent -- a drop of about 10,000 establishments to about 855,000 franchises.

Jobs in franchise businesses are expected to fall by 2.1 percent, which translates to a loss of about 207,000 jobs. Additionally, said the report prepared by PricewaterhouseCoopers, franchises will generate $4.2 billion less in 2009 in terms of overall economic output.

The IFA said the predicted declines can be partly attributed to the credit crisis and the drop in consumer spending. The study cites preliminary data by FRANdata, a firm specializing in franchising industry data. The FRANdata study said borrowing by franchises is likely to fall by 27 percent in 2009 compared to the prior year.

While most business sectors in the franchise industry are expected to shrink, quick-service restaurants are expected to see a 1.5 percent uptick in growth and sit-down/full-service restaurants could see a 1.3 percent growth.

The sectors that are predicted to experience the largest percentage reductions in employment are automotive, retail food and retail products and services. Each contracting employment by more than 5 percent.

The 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).

Association President Matthew Shay said that although the current conditions are challenging, they are temporary. He said that after the national recession in 2000 and 2001, the industry eventually did generate 140,000 new businesses and 1.2 million new jobs over a five-year period. The franchising industry grew at a faster pace than many other sectors of the economy from 2001 to 2005, expanding by more than 18 percent, he said.

By Sharon McLoone |  January 7, 2009; 2:45 PM ET
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