How Economic Changes Impact Franchises

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Economic Overview: 2024 Trends in Franchising

At the start of 2024, franchise industry experts like Franchise Times had positive economic outlooks across the board.

The projected franchise output across the U.S. economy was close to $893.9 billion, a 4% increase from $858.5 billion in 2023.
The number of franchised establishments was expected to similarly increase by 4% in 2023 and 2024, bringing the number of franchises to an estimated 821,000.
Franchises would also create 221,000 jobs in 2024, increasing the number of employees from 8.6 million to 8.9 million.

Those predictions were made prior to the start of the U.S. election’s campaigning, continued fluctuations in interest rates, and more. So have their predictions held up?

FranNet’s franchising economic outlook is a bit more conservative.

The good news? Franchise output in the U.S. should still rise by around 4%.
The number of franchises, not as much. They expect growth closer to 1.9% (15,000 units).
They also show employment growing slightly slower at 2.6%, closer to 8.8 million jobs.

Growth is growth. So what’s causing the decrease in optimism and certainty?

Let’s look at the economic impacts on franchises to find out.

Top Economic Impacts on Franchises

The two biggest economic impacts on franchises are inflation and consumer spending.

The Impact of Inflation on Franchises

As in any election year, inflation is a hot topic. The cost of goods and services has risen dramatically in recent years, leaving business owners and franchisors wondering how to weather the storm.

By mid-2024, inflation has dropped. Starting at a little over 3.2%, inflation slowed to 2.5% in August 2024 – the lowest it’s been since early 2021. Good news right? Not necessarily.

Though inflation is measured as a whole, it varies vastly by industry. An overall dip in inflation doesn’t impact every franchise business in the same way.

How inflation is impacting various industries and franchises:

Industries with Decreasing Inflation (August 2024 vs. July 2024)
Energy	Down to -4% from 1%
Food	Down only slightly to 2.1% from 2.2%
Transportation	Down to 7.9% from 8.8%

Industries with Increasing Inflation (August 2024 vs. July 2024)
Real Estate	Up to 5.2% from 5.1%
Apparel	Up to .3% from .2%
CPI (Consumer Price Index) – a Retail/Restaurant Indicator	At .2%, flat from July but reaching an all time high in the U.S.

Despite an overall decrease, the industries with increased inflation are common franchise businesses – apparel, retail, real estate and housing, and more. Though food and restaurant businesses are seeing a slight decline in inflation, the economic impact isn’t likely felt.

Shifts in Consumer Spending Habits

Consumer spending impacts every business. But small, local businesses and franchises are likely to feel the economic impact most. Tighter budgets, greater oversight on spending, and lower margins can make you more sensitive to even small changes in consumer spending.

Consumer spending is shifting in a couple major ways.

Mid-pandemic, consumers focused on purchasing goods over services and staying home. Post-pandemic, the opposite is true. Spending is shifting away from high-dollar goods toward services. Think memories over material goods.
Spending at stores and restaurants continues – but with another shift. Consumers are prioritizing businesses that offer personalized service and digital convenience.

That said, brick and mortar and retail businesses can continue to thrive, as long as they offer digital solutions and exceptional customer experiences. Local businesses and franchises that offer online ordering and fast support will fare best.

Economic Impacts on Brick-and-Mortar Franchises

If inflation and consumer spending are making you wary of opening or running a brick and mortar franchise, don’t let them.

Though there are too many “Top Franchise” lists to count, they have a few things in common.

Entrepreneur’s top 10 franchises include six quick service restaurants as well as in-person retailers and service businesses. Check it out.

Taco Bell
Jersey Mike’s Subs
Popeyes Louisiana Kitchen
The UPS Store
Ace Hardware
Dunkin’
Culver’s
Hampton by Hilton
Arby’s
Kumon

Whether these top franchise lists are based on investment costs, profitability, growth potential or brand strength, restaurants and retailers rule these lists.

What do these top franchises have in common? Physical – brick and mortar – locations. (Several are also Pandora CloudCover users.)

Despite economic changes, retail and dining foot traffic is still up month over month. Consumers are spending more time in stores. Franchisees should be capitalizing on it.

How to take advantage of increased foot traffic despite inflation and real estate volatility:

Embrace smaller spaces. Spend on fewer square feet where possible.
Prioritize locations near consumer workplaces and housing. Walkable is best!
Outfit your store with background music to increase dwell time and spending.

Can background music really increase dwell time and consumer spending?

There have been numerous psychological studies around the impact of overhead music for both staff and customers at brick and mortar businesses. Psychologists have looked at how music genre, tempo, volume and more impact both mood and buying behaviors.

Long story short, the right songs and playlists – when curated for your brand – help staff stay happier and customers spend more money. That’s why many business owners use music to ultimately increase sales. It’s a great way to offset these economic challenges like inflation.

Long-term Economic Outlook and Strategic Planning

What does our changing economy mean for business? What do economic fluctuations mean for franchisors and franchisees?

Generally, the franchise community’s outlook remains positive:

Continued decline in overall inflation through year end
Mostly steady consumer spending, with the holiday spending bump approaching
Clear consumer expectations from top brands

Franchise veteran? Stay true to the franchise model:

Emphasize training and support to ensure the brand’s economic resilience and consumer resonance.
Keep your eyes on cash flow to protect your financial investment.
Know the competition. There’s a lot of it!

New to franchising? Some notes from the top franchise lists:

Texas, Florida and Georgia are poised for the strongest franchise growth in 2024.
Quick service restaurants (QSRs), personal services and lodging are slated for the strongest growth and economic resilience.

Need Help with Your Franchise’s Space?

Pandora CloudCover offers a free, 14-day trial of our background music service (terms and conditions apply). Improve your business’s in-person shopping or dining experience today and start offsetting these economic challenges.