Franchise Trends That Make 2022 the Year of Opportunity The newly released 2022 Economic Outlook for Franchising shows franchise economic output in proportions unmatched by almost any other sector in the economy.
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Last year saw one of the best comebacks the United States has ever seen. Across the country, people had more cash in their pockets, more investments in the stock market and more confidence in a continued recovery for their businesses than we have seen in years, perhaps decades.
With the latest surge of the Covid-19 pandemic waning, the economic recovery will almost certainly continue, and it's being led by the franchise industry. With continued growth across every franchise sector, 2022 will be a year of new opportunities for aspiring entrepreneurs to reimagine their careers as owners and operators of highly successful, recognizable franchises.
As evidenced by the newly released report from the International Franchise Association, the past year saw franchises generate jobs, advance careers and economic output in proportions unmatched by almost any other sector in the economy. Total output from franchised establishments increased by 16.3 percent over 2020 figures to nearly $788 billion, exceeding 2018 output by over $20 billion. To account for this level of growth, franchises rapidly expanded their workforce, and by year's end they employed 8.8 percent more people than in 2020.
That is a gain of over 660,000 jobs, and it's good news for employers and employees alike. A relationship with franchisors allows franchisees to better recruit and retain workers, even as employment remains the sole responsibility of the franchisee. That's because first, the franchise brand offers additional business training and support other small businesses lack, and second, franchises offer better benefits and higher wages than independent small businesses, per Oxford data. Among franchisees, 69 percent offer health insurance (compared to 49 percent of employers nationally) and three-quarters offer vacation time, sick leave and other benefits. Even better, for many employees, a job at a local franchise business becomes a satisfying career as they climb the ranks faster than in other small businesses. Franchise employment opens the door to fast advancement, and even eventual business ownership, for the aspiring entrepreneur.
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Some encouraging data
This year, franchising is expected to continue this remarkable expansion in employment. We project that this year, this growth trajectory will continue, though at a slightly slower pace as the economy renormalizes. As output expands another 5 percent over 2021 numbers, we expect franchises to add another 257,000 jobs to their businesses and the U.S. economy, representing 3.1 percent growth in 2022. The sector that sees the largest surge in employment numbers will likely be in the lodging sector, in which we forecast a nearly 7 percent increase as Americans get back to traveling for both business and leisure. Strong employment growth of close to 5 percent is also likely in the commercial and residential services sector due to continued strong performance in the real-estate market.
Seeing opportunity in the strong performance and promise of franchising, tens of thousands of Americans have partnered with franchisors to open their businesses, and all signs point to the trend continuing this year. The number of franchised businesses grew at a healthy pace in 2021, increasing by 2.8 percent year-over-year, compared to just 1.7 percent growth before the pandemic. In 2022, we predict another 17,000 new franchised businesses will open, a growth rate of 2.2 percent over 2021. We expect the sector with the largest number of new franchised establishments this year will be in personal services — gyms, beauty salons and entertainment venues — where Americans will be spending more time this year. Pent-up demand will be the driving force behind this increase, since the personal services sector took one of the largest hits at the height of the pandemic. This year, we project a growth rate of 3.1 percent, nearly as high as 2021's growth rate of 3.6 percent.
In taking a broad look at both performance and projection, two things become immediately clear. First, franchises were a critical engine powering the resurgence of the American economy in 2021, creating thousands of jobs and opening countless opportunities for career advancement for both existing and new employees. As always, across every region of the country, the American economy was strengthened by franchises. That deserves applause, but to those of us who already know how franchises power the American economy every single day, it's not necessarily surprising.
Even more remarkable is how many Americans have seized the opportunity brought by the recovery to become owners and operators themselves. Behind the Great Resignation is a Great Reimagining of what Americans want their careers and lives to look like. The unique business model of franchising breaks down legal hurdles, advertising overhead and other start-up costs, and amid the highest inflation in 40 years, franchising insulates aspiring entrepreneurs against high costs because brands build economies of scale with suppliers. All of this is expanding the business opportunity to become an owner to groups of people who might otherwise never take the plunge. Around 26 percent of franchises are owned by people of color, nearly 10 points higher than other independent businesses, and 70 percent of franchisors report a veteran opened a franchise location in the last year. Nearly one-third of franchisees who responded to a national survey reported they would likely not be able to own a business themselves without franchising.
Ensuring future success
Granted, not every franchisee — or corporate franchisor, for that matter — will prosper, so care and due diligence is essential for success. Evaluating the franchisor's business model, its ascendency nationally and its specific uptake regionally increases an entrepreneur's odds of success on the other side of the plunge. This is especially true in states taking a harder line on the business model, such as California, which is pushing hard to implement the FAST Act that threatens to upend the business model. The model may emerge in other states as well, especially since policies that start in California tend to spread quickly, so developing a deep understanding of the full context for the business' success is essential before taking the plunge. As with any business venture, seizing the opportunity franchising provides equally requires individual responsibility for both the process and the outcome.
In franchising, you go into business for yourself, but not by yourself. With this year projected to be another strong year of economic recovery powered by franchises across the country, more aspiring entrepreneurs are sure to find their future in franchising in 2022.