2012 Franchising Outlook Better Than 2011 Reality

On December 21, 2011, in Restaurant News, by Maggie Ernst

The number of U.S. franchises declined for the third consecutive year, falling by a modest 0.6 percent  in 2011, according to a new report commissioned by the International Franchise Association (IFA). “There was a greater contraction in the number of businesses than we anticipated,” said Steve Caldeira, president of the IFA.

In an interview with the Wall Street Journal, Caldeira said that a lack of access to credit “probably was a factor,” in the decline this year.  In January, the IFA had forecast 2.5 percent growth this year for the sector.  Employment at franchises rose just 1.9 percent in 2011 compared with IFA’s previous forecast of a 2.5 percent increase.

However, the 2012 forecast, which was prepared by IHS Global Insight, said it expects U.S. franchise establishments to increase in 2012, by 1.9 percent.  It also expects franchise businesses to boost hiring and sell more goods and services in the year ahead.

Quick-service restaurants are expected to continue to make up the bulk of franchise establishments in operations next year (21 percent).  They are also likely to provide the greatest number of jobs (37 percent) of all franchise categories, and to generate the most revenue (26 percent).

In a survey earlier this month of 149 IFA members, more than one quarter of franchisees said they expect a “moderate improvement in access to credit” over the next 12 months, compared with just 6.3 percent who said this in a November 2010 survey.  Among franchisers, 55 percent said they expect a “moderate improvement in access to credit” in the year ahead, up slightly from 53 percent who said the same in November 2010.