Franchise Lawyer Blog

What’s in Store for 2011

Another year, another murky economic landscape. It is the time for self-appointed experts to tell us that the economy is poised for a generation-defining upsurge, or teetering on the edge of a financial collapse for the ages. As you probably know, neither of those momentous events will happen, although something will definitely happen and it will be either positive or negative. But it may not be apparent until well into the year whether or not it is going to be a good year or a bad one, if it ever reveals itself before the year becomes history.

And as for the business of franchising? Also uncertain. The International Franchise Association (“IFA”), traditionally a voice for the franchisor side of the industry, is predicting growth in its annual Business Economic Outlook. In fact, the IFA suggests a decidedly optimistic view on growth in the franchise industry, predicting 2.5% growth in franchise establishments, 2.5% growth in franchise-related jobs and 4.7% growth in franchise related economic output, growing 33 billion dollars to 740 billion dollars.

Granted, the IFA is frequently one of the more optimistic voices. In the area of job growth, a key indicator of overall growth in all industries, Federal Reserve chairman Ben S. Bernanke presents a more pessimistic view on the economy, presumably including the franchising space. It is his view that the labor market could take up to four to five years to fully recover and that unemployment, now well in excess of 9%, continues to cause a substantial drag on economic growth. Additionally, the credit markets remain in turmoil. Even the rosy IFA prognostication acknowledged continuing difficulties for start-up franchises and franchisor systems in obtaining credit.

We have been through this exercise before on this franchise blog. Every year or even every few months we take a look around and see what the future holds for the franchising model. Is it countercyclical, as has been suggested? That’s not clear, but it is clear that franchised businesses have not taken the worst hit in this economic downturn, either. There was growth in 2010 in the franchise industry and it is not outrageous, given the indicators, to predict some growth in 2011. As much as the IFA predicts? Only time will tell.

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