Franchise Mama

BY FRANMASTER, www.franmaster.com

While you are most likely aware of the franchised businesses which you frequent on a regular basis, you may not be conscious of the impact the franchise industry has on the U.S. economy as a whole. Because franchising as a business model is utilized in over 75 separate industries, it is easy for the aggregate value of franchising to be lost in each individual business segment.

When reviewed as a whole, franchising directly employs over eleven million people. In fact, only two sectors, retail and health care, play a larger part in keeping America growing. The impact of franchising on the economy is so great that the U.S. Census Bureau has added franchise questions to its 2007 Census of Business, an unprecedented move.

The International Franchise Association has just released its new Franchising Economic Impact Report, which can be found at: http://www.buildingopportunity.com. The IFAs Educational Foundation funded a study utilizing 2005 data (the latest information available) as a sequel to its ground-breaking 2004 study with the same name. Written by Pricewaterhouse Coopers, this report not only examines the direct impact of franchising (such as employees working for franchises), but the indirect impact as well, (those jobs that are created and supported by the existence of franchised businesses).

The statistics were amazing: franchising generates almost 21 million jobs and accounts for over 15 percent of the private-sector economic output. There were more than 900,000 franchised businesses in the U.S. in 2005, generating more than $2.31 trillion in total economic output.

The study looked at the two basic types of franchise models: business-format and product-distribution.

A business-format franchise is a strategy where the franchisor licenses a trademark and operating system to the franchisee. The franchisor is going to tell you what to do and how to do it. Industries where this type of franchise is seen include restaurants (fast food as well as full service), lodging, automotive, business, commercial, and residential services, real estate, and retail.

A product-distribution franchise is an opportunity where the franchisor gives you rights to sell a specific product so that the franchisee is responsible for presale and post-sale service to customers. Common examples are gas stations, automobile dealerships and beverage distributors.

Business-format franchises, the most common type, accounted for 773,436 establishments, 16,529,145 jobs and $478.4 billion payroll creating $1.7 trillion of economic output. This was more jobs than the entire construction sector.

Product-distribution franchises operated in 135,817 establishments providing 4,445,491 jobs and $182.5 billion in payroll producing $557.1 billion of economic output. Between direct and indirect job activity, franchising generates one out of every seven jobs in the private sector.

Franchising has been embraced across the country. With the exception of New York state, franchising provides employment for at least 10% of the private sector workforce, with the average being 15.3%.

The study was based on 2005 employment data and utilized five separate governmental and private sources to derive the reported information. In fact, franchising has been exceeding the growth rates in other sectors.

So, next time you are in your favorite local franchised business, take a look around. One in eleven businesses in America are franchises, and the number is still growing. Franchising keeps the American dream alive and well.