As Franchise Sales Grow, Regulatory Burdens Remain
Franchises are continuing to grow in popularity across the US among people who want to own their own businesses, but want the support of an established brand in their corner to support with aspects of starting and growing a business like construction, legal issues, and marketing. Restaurant franchises, in particular, have been booming. The Indianapolis Star reported that according to IHS Economics estimates, in the last year, “more than 157,400 quick-service restaurants provided more than 3.34 million jobs and brought in over $233 billion in the US.” Furthermore, year-to-year sales are projected to grow “near 6 percent in 2015,” and have grown “67 percent” since 2010. Indiana University entrepreneurship senior lecturer Mark Long explained that franchises provide an “obvious alternative to starting your own business.” And, Long said, “The average for a quality franchise is somewhere between $250,000 and $555,000, and the franchisee typically must have a net worth of at least $1 million.” However, the “franchise fee” can be between “$15,000 to $50,000” and “startup costs also include construction, equipment, legal fees, supplies and labor,” the Star reported.
In a recent editorial the New York Times expanded upon some of the challenges franchisees face, noting the “$94 billion in annual revenue” franchises bring to California alone along with employing “almost one million” workers. The Times cautioned that legal developments have over time “reduced the power of franchisees in dealings with their corporate parents,” resulting in “lower franchisee profits and lower worker pay, while corporate profits and executive compensation soar.” The Times lauded a measure passed in the state legislature that would bar “the most egregious corporate practices, including the termination of franchises for minor violations of the franchise agreement.” The Times suggested the measure could “show the federal government where it needs to go at the national level” to benefit “profits and pay at franchise businesses.”
What This Means For Small Businesses
The two recent news stories highlighted above show the benefits and challenges current franchise owners face. On the one hand, opportunities to open franchises are growing, as are sales, as consumers seek more recognizable dining and retail choices in convenient local settings. However, regulatory burdens have increasingly weighed on entrepreneurs seeking to start and grow a successful franchise. Legislation in California could be a future model for national measures to help protect franchise owners and their workers.
Additional Reading
See more resources on how to successfully run a franchise.
Note: this article is intended to keep small business owners up on the latest news. It does not necessarily represent the policy stances of NFIB.
