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Franchise industry expects it to rebound if Covid is brought under control

After a year marked by unprecedented business closures, disruptions and challenges, the franchise industry is poised to rebound to pre-pandemic levels by the end of the year if Covid-19 is controlled, according to a forthcoming report.

In its annual economic outlook, the International Franchise Association estimates that more than 26,000 franchised locations will be added, ie a gain of 3.5% to more than 780,000 establishments. The additions would help offset last year’s declines.

In addition, franchise employment is expected to increase by more than 10% to nearly 8.3 million workers, the group said. He added that of the nearly 800,000 new jobs expected, many will come from the retail, food and service sectors.

The IFA forecast, prepared by research and consultancy firm FRANdata, projects the sector’s gross domestic product to grow 7 percent to $ 477.4 billion, and franchise output to grow 16.4 percent to $ 780 billion, also offsetting losses recorded last year. In 2020, franchising lost some 20,000 units and saw employment drop 11.2% to 7.5 million workers due to losses in the accommodation, full-service restaurant and service industries. personal.

“Through rapid adaptability, scalable technology, and a focus on in-demand products and services, the franchise industry has shown its resilience time and time again. In conjunction with smart Washington policies, franchises can help Americans get back to work, “Robert Cresanti, president and CEO of IFA, said in a statement to CNBC.

Most of the growth this year will come from the commercial and residential service industry, as well as the continued strength of the quick-service restaurant category, which has grown over the past year. The strength of the recovery involves several factors, including control of the pandemic, vaccine rollout and pent-up consumer demand.

“It’s important to understand that there won’t just be this explosive growth as soon as everyone gets the green light,” said Darrell Johnson, CEO of FRANdata. “The world has changed and consumer behavior has changed dramatically in some ways, which will lead to a different kind of growth that will flow from it.”

Johnson cited the huge growth in door-to-door delivery and curbside pickup at quick-service restaurants as an example. He said these services were “forced into the equation” because it was the only way for consumers to buy products.

The industry’s recovery also depends on government action to support both small businesses and the economy as a whole.

President Joe Biden’s $ 1.9 billion economic stimulus package includes help for small businesses in the form of grants and financing, as well as direct checks to individuals. Congressional Democrats are also pushing to include $ 25 billion in aid specifically for restaurants.

The paycheck protection program has been a lifeline for many small businesses that have been able to access funding, with the Small Business Administration reporting that as of February 15, just under 1.7 million loans had been approved. for nearly $ 126 billion.

The average loan was $ 75,000 because small businesses have access to the aid, but $ 1.17 million were second-draw loans, for those who received assistance earlier in the cycle and are doing it again. call to the program.

The IFA report will say that nearly half of all franchisees are one or two unit operators, and this includes a number of minority-owned businesses and those operating in underserved communities. Help is important because these small businesses are at the greatest risk of closure.

“There are companies that have benefited from the first cycle of PPP that kept them alive. They got a second round of PPP because they were still really in pain, so they were kept alive. for these companies? “says Johnson.” And therein lies the conundrum for policymakers. “

Another factor in the recovery includes government policies such as increasing the federal minimum wage, according to the report. The IFA has warned of Biden’s plan to raise the federal minimum wage to $ 15 an hour by 2025, warning it could slow the recovery and lead to the adoption of greater automation .

The National Restaurant Association released data on Tuesday echoing this sentiment. He said 82% of operators expect the initial salary increases to hurt the recovery after Covid-19.

“Passing this bill this year would result in job losses and increased use of workforce-reducing equipment and technologies,” said Sean Kennedy, executive vice president for public affairs at the catering trade group, in a press release. “Almost all restaurant owners say they will increase menu prices. But what is clear is that raising prices for consumers will not be enough for restaurants to absorb the higher labor costs. . ”

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