Financing

6 takeaways from the IFA’s 2018 franchising forecast

It wasn’t a coincidence that the International Franchise Association issued its business outlook for franchising on the day before President Trump’s State of the Union address. The chief executive’s efforts to lighten the regulatory burden on business, coupled with last year’s tax reform package, were cited by the group as the major factors behind the group’s forecast of a robust year ahead.

The association expects sales growth to be particularly strong for restaurant franchise chains, both limited-service and full-service.

In releasing the numbers, the IFA and guests invited to the presentation shared a number of information nuggets worth noting. Here are a few of those takeaways.

1. Look for an echo effect from utilities

The rollback in corporate tax rates will likely have an unexpected positive effect on the top and bottom lines of restaurant companies, suggested Sen. John Barrasso (R-Wyo.) He suggested during the presentation of the IFA’s data that utilities are poised to pass along what they save under new corporate tax rates to their customers. Gas and electric bills will come down, he predicted, leaving consumers with more money to spend, and lowering the energy costs of businesses.

2. ‘Joint employer’ is still a fear

Although recent actions by the National Labor Relations Board have lessened the chances of franchisors being held liable for franchisees’ labor mistakes, potential problems from a "joint employer" interpretation still lurk, said IFA CEO Robert Cresanti.

“There’s been some pressure taken off, but this issue remains a top priority for us,” in part because of franchisees’ fears, he said. “It is holding them back from opening more restaurants because they are concerned about being cast into the same lot as the brand owners, the franchisors. The market is begging for clarity on this.”

He noted that the interpretation of joint employer has changed from one president to the next. “The fact this vacillates back and forth between administrations has to be fixed,” Cresanti said. Setting a permanent definition through legislation is the only way to go, he said.

3. An unexpected result of tighter immigration

During the release of the IFA’s forecast, the presenters were asked how more restrictive immigration might affect franchising, since the restaurant industry has often been a path to business ownership for new arrivals. Jim Creel, CEO of Taco John’s, noted an impact that has seldom figured into discussions about immigration reform.

“From the restaurant industry perspective, stricter immigration could have some effect on our supply chain—fruits and vegetables, getting those to our restaurant in a timely and fresh basis,” he noted.

4. Wage hikes as a dampener

Creel also aired concern as a franchisor about future hikes in the minimum wage. “In terms of wages, we are seeing people paying more than the minimum wage,” he said. “The minimum wage hasn’t been a big problem. But if it continues to rise, it could have an effect on the number of stores that franchisees are willing to open.”

5. A bonus for Taco John’s and its employees

The CEO cited his company as a prime example of how franchise organizations are benefiting immediately from last year’s tax overhaul. “We understand firsthand the benefits of the lower corporate and small-business tax rates,” he said, noting that Taco John’s is a pass-through concern. “I plan to invest in more technology that will be useful to our brand. We will use part of our lower rates for a one-time bonus for our employees.”

6. Confidence as a spending boon

Barrasso passed along some economic insight that he’d taken from a recent conversation with Alan Greenspan, the former chairman of the Federal Reserve. The brainy finance expert had noted to the senator that people tend to spend more liberally when contributions to their 401(k) retirement accounts are on an upswing, a reflection of their greater economic comfort and confidence.

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