As in every election year, all eyes are on the economy — especially among potential franchise investors. Is now the right time to invest? And if so, what is the projected economic outlook for the franchise industry? Those questions, and more, were answered in a recently released International Franchise Association (IFA) Economic Outlook report, and the results were eye-opening.
The report confirms a measure of uncertainty that so many sense we’re currently experiencing in the United States. Economically speaking, between higher interest rates, inflation, and manual labor shortages, those interested are left to wonder if now is a good time to invest in a franchise.
The good news of the IFA report is that all signs point to investing.
Predictions for the Future Economy
Growth in the franchise sector is stronger than previously predicted, signaling that more people are seeing the promise and profitability of franchise ownership. In 2023, the IFA predicted a 1.9% increase in franchise ownership. This year, the IFA reported a higher increase, with 2.2% more franchise establishments.
While franchise ownership continues to grow, many look at which sectors have seen the highest growth rate. The IFA report answers this by pointing to two industries with high promise in today’s economy: the personal services industry and the quick-service restaurant industry.
Personal Services Industry
There’s a behavioral economics theory called the Lipstick effect that says that when the economy becomes uncertain, more people will increase their spending on affordable luxury goods, like lipstick, during the downturn. That’s because people still want to invest in things that help them hold on to a sense of normalcy and simplicity. Making these purchases boosts their mood and morale during otherwise bleak times.
This theory could explain why the personal services sector is expected to see the most growth, with 3% more franchise establishments. Personal services are defined by any franchises offering beauty, health, fitness, education, childcare, pets, travel, and other non-essential services. Franchises that offer a unique or personalized experience to go with luxury services will likely see even higher profitability returns.
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Diesel Barbershop
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Quick-Service Restaurants
Quick-service restaurants (QSR) are the second sector poised for growth in economic uncertainty, with a predicted 2.2% increase in franchise units across the United States. Quick-service restaurants are any restaurant that offers faster dining services, such as fast food and takeout.
The reason why QSRs often see an increase in growth during economic uncertainty is similar to the lipstick effect mentioned above. Consumers like normalcy yet might need help to afford the higher price of eating out. Having a QSR to turn to for relief from meal preparation can bridge that gap, offering the feeling of eating out without the high cost.
This industry has been advancing rapidly in recent years. More QSR establishments can lower franchisors' investment costs with more innovative equipment, supplies, and materials, making it an attractive sector to invest in right now.
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What About Labor Shortages?
One of the biggest hurdles to starting a franchise has been the fear of labor shortages. Many people invest in a franchise to build more freedom into their lives, but without the right staffing, that freedom risks becoming elusive.
Now, to help overcome this hurdle and tap into the growth of personal services and QSRs, more investors are turning their heads to ghost restaurants or vending franchises that don’t require hands-on labor to serve customers.
While all businesses face challenges regardless of the economic backdrop, understanding how consumers are spending their money can help investors decide which franchise to start now.
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Kimberly Crossland is the founder of Roadpreneur and Cruisin' + Campfires, two companies designed to keep families together and living in freedom through travel and entrepreneurship. The goal of both businesses is to inspire meaningful change through the power of a strategic, thoughtful approach to life and business. In her free time, you can find her looking for a new adventure together with her two boys.