Report predicts slight growth for restaurant franchising in '09

WASHINGTON Restaurants are one of few franchised businesses actually expanding, even if only slightly, during this economic downturn, according to an International Franchise Association Educational Foundation report released Wednesday.

The franchise industry this year is expecting a decline as a whole -- by the number of establishments, jobs and economic output -- but a 1.5 percent increase in the number of quick-service restaurants and a 1.3 percent increase in the number of table, or full-service, restaurants is expected in 2009. The IFA report, The Franchise Business Economic Outlook for 2009, was prepared by PricewaterhouseCoopers LLP.

In all sectors, the number of franchise establishments is expected to decline by 1.2 percent in 2009, from nearly 865,000 to less than 855,000, according to the report.

Jobs in franchise businesses are expected to fall by 2.1 percent, for a loss of 207,000 jobs. Overall economic output, the gross value of goods and services produced by franchise businesses, will likely decline by 0.5 percent, or a loss of $4.2 billion, in 2009.

The credit crisis gets much of the blame for these declines. The report cites a preliminary study by FRANdata, a firm that specializes in franchise industry data, that predicts borrowing by franchises will fall by about 27 percent in 2009 compared with the previous year.

Consumer spending is also expected to slip, the report said.

“The U.S. economy is in the midst of the most severe recession since at least the early 1980s, with adverse impacts on a broad range of sectors of the economy, including franchise businesses,” said Drew Lyon, a partner in PricewaterhouseCoopers’ national economics and statistics practice. “The report’s macro view of the economy anticipates a continuation of the sharp downturn well into 2009 with a slow recovery.”

U.S. gross domestic product is expected to decline by 0.7 percent while employment is projected to fall by 1.9 percent in 2009, according to the report.

Leaders in the franchise industry, however, harbor optimism. An IFA Franchise Business Leader Survey in November found opportunities for growth when the credit markets stabilize.

“Franchising industry veterans know that the current conditions, although extremely challenging, are temporary,” said Matthew Shay, IFA president and chief executive. “Our survey shows that franchise business leaders have confidence in the entrepreneurial spirit of their franchisees and the fundamentals of the franchise business model as factors that will help them weather the economic storm.”?

The recession’s impact on employment will be deepest in the automotive, retail food and retail products/ services sectors, according to the IFA's report, with those areas seeing employment drop by more than 5 percent. The sectors that are projected to see the largest percentage reduction in economic output are lodging, 3.2 percent; business services, 2.8 percent; and real estate, 2.1 percent.

The International Franchise Association, based in Washington, represents more than 1,250 franchise systems, more than 10,000 franchisees and more than 500 firms that supply goods and services to the industry.