Franchising expected to pick up this year

Published by the Denver Business Journal

By Ed Sealover

March 4, 2011

After some disappointing years, franchising is expected to rise again nationally in 2011 — and companies are ready to take advantage of that trend in Colorado.

The International Franchise Association (IFA), based in Washington, D.C., forecast a 4.7 percent rise in economic output — the gross value of goods and services a business produces — by franchise businesses this year.

It also predicted a 2.5 percent jump in both the number of franchise establishments and workers, which could result in an increase of 194,000 jobs nationally. Those numbers dropped significantly from 2008 to 2009 and remained flat last year.

The loosening of credit for business loans is one reason for the expected turnaround, said Alisa Harrison, the IFA’s vice president of communications and marketing. Companies that offer franchise opportunities also can choose from a more qualified pool of applicants than usual. That’s because many experienced workers who lost jobs during the recession are turning to franchising.

“The signals in the economy are positive, not only for franchises but for all businesses,” Harrison said. “People are more optimistic about investing in businesses.”

Clint Hailey opened a Junk King franchise in Colorado Springs late last year after losing his job as a business development manager for a steel company. He was attracted to the company, which hauls off large junk and recycles or donates much of it, because it had a successful business model and would become profitable more quickly than had he started a business from scratch, he said.

“The learning curve would be shortened; the success rate would be quicker,” said Hailey, who said he hopes to open another Junk King franchise in the Denver area after he’s made his first location profitable. “It’s kind of like a business in a box. You open the box and it says, ‘Step one, step two, step three.’ Instead of creating your own dance steps, you get to put your feet on steps that are laid out for you.”

There were 765,723 franchise businesses in America at the end of 2010, employing roughly 7.6 million people and generating $706.6 billion in economic output, according to the IFA. Those numbers include 18,135 franchise businesses in Colorado that employed 197,294 people and generated $5.3 billion in payroll and $16.1 billion in economic output. Recession hit franchises hard.

The franchise industry had a steady rise throughout the past decade until 2009, when some 28,500 establishments went under during the recession. Real estate, business services and personal services franchises were hit the hardest.

Lodging, automotive and retail franchises are expected to grow the most this year, with establishment and employment growth around or above 4 percent, and an economic output increase of 4 to 7 percent, the IFA forecasts.

Franchises offering personal, commercial and residential services are expected to grow more slowly, but still have an economic output boost of around 7 percent.

Tom Ryan is the Rocky Mountain area master franchisee for Cartridge World, an ink and toner refill company that opened its first Colorado store in November 2004 and now has 16 locations in the state, including six in the Denver area. His business did well during the recession, with same-store sales rising 33 percent from 2008 to 2010 as people looked for ways to save money.

That has generated not only more interest in franchising from businessmen in their 40s and 50s who have left the corporate world but also opportunities to go into empty commercial space, Ryan said. He believes he could open another 10 to 15 locations in the Denver area, he said.

“Historically in franchising, when the economy takes a turn and guys are downsized or laid off, that’s a great time to be awarding franchises,” Ryan said. “There are great opportunities today in the real estate market. We get phone calls and e-mails from landlords almost every day.”

Denver also is an enticing market for franchise businesses now operating elsewhere, such as Atlanta-based Welcomemat Franchising LLC, which works with local businesses to send promotional offers to residents who have just moved into three states in the South.

The company started a national effort in January and has targeted Denver to get a franchise because of its ranking as a top city for relocating families and its high concentration of the “creative class” that’s more likely to shop at local businesses, CEO Brian Mattingly said.

It prefers local franchisers with business experience rather than out-of-staters, because the key to franchising is finding someone who can connect with the community, Mattingly said. That’s why franchising can be a local economic boost though the franchises often are based in other states.

“We know, based on our studies and our research, that it takes a really good local person to develop that business,” Mattingly said.