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Franchised businesses are an entrenched part of the United States' business landscape. One that has had a positive impact on national, state, and local economies. Many people do not realize how frequently they patronize franchises. From restaurants to hotels—and so much more, the franchise industry is widespread and thriving.
Across the country, there is a wide variety of franchised businesses with over 300 different categories of products and services offered. Reportedly, more than one in seven American businesses is a franchise, and the number of franchise brands operating in the United States is quickly closing in on 4,000.
Why Franchising is So Popular
The reason franchising is so popular can be largely defined by how you identify your relationship with it.
For consumers, franchising provides them with a familiar set of service providers to accomplish their needs. People are predominately creatures of habit, and dealing with franchises allows them to have an idea of what they should expect wherever and whenever they patronize a franchise brand. For example, it doesn't matter if you're visiting a McDonald's in California or Connecticut, America or Australia, you should have a similar experience wherever you are.
For franchise owners, aka franchisees, a couple of the main benefits of purchasing a franchise are the already established product/service and branding. In exchange for their buy-in and labor, franchisees gain access to the franchisor’s know-how and experience for its business system. This way, those who want to own a business can shorten the learning curve that comes with starting a business. It’s also a way for those people to avoid spending a significant portion of the time and money spent that typically accompanies developing a business idea.
For franchisors (or franchise parent companies), franchising their brand provides several benefits. Some of these benefits are lowering the company’s "monitoring costs," achieving more optimal economies of scale, bettering their ability to adapt to different markets, and more.
Revenue Generated by Franchises
For 2022, franchises in the United States are projected to bring in $826.6 billion. Five years ago, in 2017, the U.S. franchise monetary output was $720.44 billion. The increase reflects how popular franchises remain with entrepreneurs and that American consumers are still steadily increasing their patronage of franchises.
On a more micro level, the amount each individual franchise can make varies widely.
However, it isn't too difficult to gain more understanding on how a much a particular franchise can make. Each franchise company must provide potential new franchisees with a Franchise Disclosure Document (FDD). The document, which can range into the hundreds of pages, breaks down various aspects of a franchise, including startup costs, royalties and other anticipated ongoing costs, restrictions and obligations as a franchisee, and potential revenue.
Item 19 in the FDD provides the best answer a parent company can provide about potential earnings. Though it should be noted: Franchise parent companies tend to not provide an exact minimum amount of potential revenue to protect themselves from lawsuits if any franchisee does not reach the number advertised.
Number of Jobs Generated by Franchising
Franchises create jobs in their communities and beyond. For example, it is estimated that 8.2 million people in the United States are directly employed by a franchise. However, the total impact of franchises on employment is much greater.
Not only are there employees at each business location, there are also employees that transport goods, provide delivery of materials, operate the warehouses that distribute their supplies, and work in the factories or farms that supply its goods.
As for geographic distribution, based on estimates from the International Franchise Association (IFA), the Southeast has the largest franchise concentration compared to other regions. The Midwest is the second-largest region in terms of franchise establishments, followed by the Western, Northeast, and Southwestern regions.
On the state level, the top 10 states for franchise growth in 2022 (in order) are projected to be Texas, Florida, Arizona, South Carolina, Idaho, Tennessee, North Carolina, Montana, Nebraska, and Nevada.
Franchising's Impact on Local Economies
Taxes paid by individual franchises support their local communities. Those funds go to support schools, emergency services, and road repairs. Franchises create jobs and expand to new locations more quickly than other businesses. The franchises help the local unemployment rates by providing jobs for many types of people.
Many franchises become involved in their local communities by supporting non-profit organizations and schools. Many franchises will join regional business associations, sponsor local sports teams, volunteer employee time, or donate to charitable organizations. In return, the public is more likely to patronize their business keeping the money in the community.
In addition, franchises support many jobs and businesses. Through their everyday ordering of supplies or the use of local services, the franchise is putting money back into the community and supporting the local economy. Published research posits that 90% of franchise generated income stays in their community, while corporations are the opposite. The money they earn typically heads to the company's corporate headquarters. Approximately, 72% of voters believe small businesses are more likely to give back to their community versus large corporations.
As one of the largest forms of employers, franchises offer many benefits to their employees that extends out into the community. Franchises are known for their consistent training processes set by the parent company. On-the-job training empowers people to learn new skills and trades with or without a post-secondary education. As a result, the local economy gains more skilled and semi-skilled workers that earn an income and create an output of labor. Other consumers then take advantage of the employee’s training by purchasing a service or product that they created.
Franchising's Impact on the National Economy
The IFA creates an annual report detailing the most current industry statistics. Per its 2022 report, the GDP contribution of franchises to the overall economy "will remain stable at 3% in 2022."
The total combination of jobs, annual payroll, and annual output of franchises has been said to add up to approximately 7% of the GDP. Non-franchised businesses grow because of the purchases of franchises and the purchases made by the owners and workers. Per IFA research, 73% of voters believe that franchises support the national economy and, comparably, 75% of American voters believe franchises support the communities they operate in.
Potential for Future Franchise Growth
Successful franchises tend to grow new locations faster than traditional small businesses. The quick expansion is in response to consumer demand.
Franchises offer stability for owners and consistency for consumers. Half of all new businesses fail within their first year, whereas a typical franchised business is still open after five years. These positive franchising results have led to a positive cycle of growth and the creation of a lucrative industry with an average of 300 new franchise brands created annually.
Recessions, such as the ones 2008-2010 as well as the pandemic, took a toll on the U.S. economy. However, franchises fared better during these times than most other retail chains and small businesses. They have been proven to be more economically stable largely because of their branding, familiarity to consumers, and strong network base.
Current trends and the future forecast for franchises predicts greater expansion. Many more independent businesses are deciding to franchise in the United States, and FRANdata reports a significant "jump of international-based brands coming into the US market."
Summary
The creation of franchised businesses has had a lasting positive impact on the United States and the local communities that they operate in.
Countless jobs are created and supported by franchises, and these jobs help reduce unemployment rates. Franchises support the national GDP through billions of dollars in products and services, payroll, and the creation of American jobs. Local economies benefit from franchises by providing jobs, tax dollars, and community involvement. Voters trust franchise brand power for its consistency, quality, and value. The United States benefits from the multifaceted franchise industry.