Main Menu

Home

Resources

First Economic Studies

Prior to publication of the first report in February 2004, the Economic Impact of Franchised Businesses, Volume 1, there were no comprehensive measures of the number of establishments, jobs, payroll and economic output due to franchising. There were no identifiers for franchised businesses in the U.S. government's Economic Census. Compounding the problem, there was no one database that could provide all the measures required to conduct a comprehensive study. Much credit goes to the IFA Board of Directors for funding this groundbreaking research study and to the PwC team of economists for compiling various databases and developing the models necessary to develop the estimates for the first study.

The second report, the Economic Impact of Franchised Businesses, Volume 2, further documented the growth of franchising from 2001 to 2005. Volume 2 demonstrated that the franchising sector outpaced many other sectors of the economy during this time period. Direct economic output expanded by more than 40 percent compared to only 26 percent for all businesses. From 2001 to 2005, the franchise industry created jobs at more than three times the rate of other businesses. This is a report card for the franchised business model that IFA members can be proud of.

Furthermore, these studies demonstrated to policymakers that while franchised businesses account for less than three percent of all business in the United States, their economic contributions are out-sized in relation to their numbers. *

Both Volume 1 and 2 provided breakouts of these economic measures: establishments, jobs, payroll, and economic output at the national, state, and congressional district level, and by business category. These reports contained 600-plus pages of "mini economic impact studies" that allowed IFA's leaders to clearly document the economic footprint of franchising in every state and congressional district in the country. Put another way, one objective of these economic impact studies was to answer the question, "What does franchising do for my state, my congressional district, my community and for the nation's economy as a whole?"

Another important objective of the first two reports was to gain the attention and interest of the U.S. Census Bureau in expanding the Economic Census to include separate questions and identifiers for franchised businesses in the 2007 U.S. Economic Census. Working closely with Census officials and PwC, we were able to identify 295 detailed industry sectors, out of 1,068 covered by the Census, that include franchised businesses with paid employees. (The Economic Census does not include businesses without paid employees, also known as non-employers). **

As a result, the U.S. Census Bureau released the 2007 Economic Census Franchise Report at IFA's Public Affairs Conference in September 2010. This report is the first census of business format and product distribution franchises in the United States, for businesses with paid employees.

New Study Supplements Census Data

Building on the new Census report, PwC supplemented this data to complete The Economic Impact of Franchised Businesses, Volume 3. Volume 3 supplements the Census data in four important categories: estimates of franchise activities in businesses without paid employees (for example, small family-run businesses and independent contractors), estimates for 33 industries not covered in the Census survey, estimates for the indirect impact of franchised businesses, and other economic variables.

Volume 3 provides measures for establishments, the number of jobs, payroll, economic output, and for the first time, a measure of gross domestic product (GDP). Economic output is the gross value of goods and services a business produces, most commonly known as sales. GDP is the gross value of goods and services a business produces less the expenditures. Volume 3 provides the same breakouts as previous reports--by national, state, and congressional district level, and by business category. The report includes establishments operated by franchisees and those operated by franchisors. The 2007 report includes both business format and product distribution franchises organized into separate categories.

The data sources used to supplement the Economic Census data include other U.S. Census Bureau reports: County Business Patterns, 2007, Zip Code Business Patterns, 2007, Nonemployer Statistics, 2007, the 2002 Survey of Business Owners, and other sources such as the Dun & Bradstreet Marketplace DVD-ROM, and the Minnesota IMPLAN Group modeling software. Due to major changes in the data sets, and the addition of the more recent 2007 Economic Census data, estimates in the Volume 3 report are not comparable to the Volume 1 and 2 studies.

Economic Activity in Franchised Businesses

In 2007, there were more than 828,000 establishments in franchise systems in the United States. These businesses directly provided:

9.1 million jobs
$304.4 billion in payroll
$802.2 billion of economic output
$468.5 billion to GDP

Franchised businesses amounted to 2.8 percent of all non-farm business establishments. Their economic activity accounted for:

6.2 percent of all private, non-farm jobs
3.4 percent of all private non-farm output
3.9 percent of all private non-farm GDP
3.4 percent of all U.S. GDP, including the government and farm sectors

Franchised businesses provided about the same number of jobs in the United States in 2007 as the manufacturers of durable goods, such as computers, industrial equipment, cars, trucks and planes. Franchised businesses provided more jobs than many other sectors of the economy, such as financial and insurance, wholesale trade, transportation and warehousing, and others.

Economic Activity Because of Franchised Businesses

The economic significance of franchising is greater than the activity in franchised businesses alone. Franchised businesses generate economic activity in other businesses, which is described as the indirect economic impact. Taking into consideration economic activity in franchised businesses and additional economic activity caused by franchised businesses, the total contributions to the U.S. economy in 2007 were:

17.4 million private non-farm jobs, or 11.8 percent of the total
$707.6 billion private non-farm payroll, or 9.7 percent of the total
$2.1 trillion of private non-farm output, or 9 percent of the total
$1.2 trillion of private non-farm GDP, or 9.7 percent of the total
Overall contribution to GDP because of franchised businesses accounted for 8.4 percent of total U.S. GDP, including government and farm sectors in 2007.

Business Model and Lines of Business

In 2007, business format franchising was far more prevalent than product distribution franchising, with 20 times the number of establishments, five times as many jobs, and four times the amount of economic output and contributions to GDP.

Volume 3 provides a further breakout of business format franchises into 10 business lines. Of these, Quick Service Restaurants provided more establishments and jobs and generated more economic output than any other line of business with 37 percent of all jobs. Table/Full Services Restaurants provided 12.7 percent of all jobs and Business Services provided 12.4 percent of all jobs.

In terms of contribution to GDP, Quick Service Restaurants provided 21 percent of GDP, followed by Business Services 19.4 percent of GDP, and Real Estate 13 percent of GDP.

When measuring the ratio of franchised establishments to all establishments within a line of business, franchised restaurants made up the largest component of all Quick Service Restaurants (46.2 percent), followed by franchised hotels in the Lodging sector (21 percent), and franchised full service restaurants in the Table/Full Service Restaurants sector (12.7 percent).

When measuring the ratio of jobs in businesses compared to all companies within a line of business, Quick Service Restaurants also provided the largest share of jobs (68.5 percent), followed by Lodging (31.8 percent), and Table/Full Service Restaurants (21 percent) within their business sectors.

Eighty-six percent of establishments in the business format franchise sector were owned and operated by franchisees and 14 percent were company-owned and operated.

Next month, Franchising World magazine takes a look at franchising in the states and congressional districts.

*Government sources indicate there are approximately 29 million businesses in the United States, including both employer and non-employer establishments.

**The Economic Census does not cover non-employer businesses, such as small family-run businesses and independent contractors. According to the Census Bureau there are 21.4 million non-employer businesses (73.8 percent) compared to 7.7 million businesses with paid employees (26.2 percent).

"Connecting Entrepreneurs with Business Opportunities"

Do you want to own a business?

I will search for franchised and non-franchised business opportunities.
I will assist you with finding non-traditional sources of business financing.
Buyers pay absolutely no consulting fees!
Referral an self-referral fees of $500 to $1,000 will be paid directly to you if the result of the consultation leads to an agreement with a franchisor.

Are you selling a business or have you considered franchising your business?

I will assist you with a national network of business brokers.

I will help you franchise your independent business at a very reasonable cost. A free self-questionnaire is available to assist you in making a decision about whether or not to franchise your independent business.