Franchises outpace rest of economy

By Katherine Poythress 6 A.M.JAN. 15, 2014
7-Eleven is one of the nation's fastest-growing franchises, according to Entrepreneur magazine. The International Franchise Association said this week it expects to see 93,000 new jobs, 13,000 new business establishments and $38 billion more in economic output in the franchise segment this year. — John R. McCutchen

Franchise businesses, which grew faster and created more jobs than the rest of the economy last year, are expected to continue outpacing other sectors in 2014.

The International Franchise Association this week said it expects to see 193,000 new jobs, 13,000 new business establishments and $38 billion more in economic output in the franchise segment this year.

The forecast was prepared for the association by economic analysis firm IHS Economics and Country Risk. The firm based its projection on 2013 numbers that showed the number of franchise establishments increased 1.4 percent and their output rose 4.3 percent in 2013. While modest, that pace put franchises ahead of non-franchise businesses in the same industries.

Franchise employment also rose 2.3 percent, boosted by gains in the fast-food segment and beating the firm's December 2012 forecast of a 2 percent gain.

In 2014, the number of franchise businesses is expected to rise by 12,915, bringing the total to 770,368. That is a growth rate of 1.7 percent, and an improvement over the 1.4 percent growth in 2013.
New jobs in the franchise sector will keep pace with the gains in 2013 and outstrip total private sector employment growth by 0.3 percent.

The projected increases are no surprise to Vish Krishnan, a professor of innovation, technology and operations management in the Rady School of Management at the University of California, San Diego.

The franchise sector has seen significant growth over the last decade, he said, thanks in part to the challenged economy that sent many job seekers into franchise ownership when they couldn't find more traditional employment.

"I think it's due to a combination of people's quest for autonomy and the lack of compelling outside opportunities," Krishnan said.

"It's in some ways a less risky way to start a company, because the only real risk you're taking, as a franchisee, is the location.

You get training, you get a proven concept, and you get the ability to combine a job and a nice paycheck."

Sean Curry, who co-owns two Massage Envy franchises in Solana Beach and Carmel Valley with his wife and other partners, said owning a franchise comes with some peace of mind. While it's still hard work, he said, you can vet the concept before buying into it. That's especially reassuring during hard economic times, he added.

"Franchising is great if you want a business in a box," said his wife, Joice Truban Curry, who also co-owns a communications firm with Sean and one other partner. "Everything comes to you, soup to nuts — all of your marketing, everything down to even what carpet you want to use."

Franchise businesses are good for the franchisors, too, said Krishnan.

He coordinates a Lab to Market program at the school that focuses on turning ideas into business concepts, and he advises his students, especially those interested in providing services, to make them franchisable.

Starting a franchise makes it possible to expand a service concept with less capital than it would take to establish a traditional chain.

"In the past, the problem with services is that they weren't scalable," Krishnan explained. "You would open, say a dry cleaning service or a salon and run it yourself, but you wouldn't create as much wealth as someone who opened a product company. Now you can come up with an idea, make it work and replicate it around the country. That has made it possible for service companies to become as profitable as product companies."

Although some of the biggest names in franchising — McDonald's, Subway and 7-Eleven — are in the food industry, other service businesses, from laser hair removal to printing, are making big profits with the franchise model, he said.

One of the nation's fastest-growing franchises, home-based fitness concept Fit4Mom, is based in San Marcos and made Entrepreneur Magazine's Franchise 500 for two consecutive years. It was ranked No. 56 among the fastest-growing franchises in 2010.

Business services and fast-food restaurants are expected to be the lead drivers behind job creation in franchise companies this year, the IHS report said, together adding more than 110,000 jobs in 2014.

http://www.utsandiego.com/news/2014/jan/15/franchise-growth-faster-than-rest-economy/