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					The State of Franchising
Darrell Johnson President, President FRANdata

What’s Ahead in 2009
•F Focus i on 2009 is
General Economic Forecast Franchise Forecast F hi F Implications Conclusions C l i

• Additional trend data on FRANdata web site

General Economic Forecast
•N B No Bounce • At least 2010 before Economic Stabilization

General Economic Forecast
US GDP Real Growth Rate, 2003 to 2008
5.00% 4.50% 4.00% US GDP Real Gr rowth Rate 3.50% 3.00% 2.50% 2.00% 1.50% 1.00% 0.50% 0.00% 2003 2004 2005 2006 2007 2008

General Economic Forecast
• No Bo nce Bounce • At least 2010 before Economic Stabilization • U Unprecedented de-leveraging under way d t dd l i d • Pretty clear which way interest rates will go

10%

0% Mar-98 Jul-98 Nov-98 Mar-99 Jul-99 Nov-99 Mar-00 Jul-00 Nov-00 Mar-01 Jul-01 Nov-01 Mar-02 Jul-02 Nov-02 Mar-03 Jul-03 Nov-03 Mar-04 Jul-04 Nov-04 Mar-05 Jul-05 Nov-05 Mar-06 Jul-06 Nov-06 Mar-07 Jul-07 Nov-07 Mar-08 Jul-08 Bank Loans B kL Fed R t F d Rate

1%

2%

3%

4%

5%

6%

7%

8%

9%

General Economic Forecast
Loan Rates 1998 – August 2008

General Economic Forecast
• • • • No Bounce At least 2010 before Economic Stabilization Unprecedented de-leveraging under way de leveraging Pretty clear which way interest rates will go

• Crisis of Credit Becoming Crisis of Confidence

General Economic Forecast
Consumer/Business Demand /

Conference Board Consumer  C f B dC Confidence
120 100 80 60 40 20 0 J J A S O N D J F M A M J J A 120 100 80 60 40 20 0

Business Roundtable CEO Economic  Business Roundtable CEO Economic Outlook Index

Franchise Forecast for 2009
•F Franchisors — th hi there will be winners ill b i
Some sectors will stay hot New brands will continue but at a slower pace

Franchise Forecast for 2009
Brands Starting to Franchise Since 2000
300

250

200

150

100

50

0 started

2000 127

2001 128

2002 180

2003 244

2004 272

2005 269

2006* 260

2007* 149

2008** 158

*Estimate

**Forecast

Franchise Forecast for 2009
Top Ten industries by New Concepts Added, 2002 to 2008
Fast Food Restaurants Restaurants (Sit-Down) Health & Fitness Maintenance Services Business-Related Retail Food Services-General S i G l Child-Related Real Estate Beauty-Related 0 50 100 150 200 250 2002 2003 2004 2005 2006 2007* 2008**

*2007 figures are based on estimates **2008 figures are based on most current available data

Franchise Forecast for 2009
•F Franchisors — th hi there will be winners ill b i
Some sectors will stay hot New brands will come at a slower pace Increasing number of foreign brands entering the US g g g Brand acquisitions will continue

Franchise Forecast for 2009
•F Franchisors — th hi there will be losers ill b l
Franchisors covering G&A from fees vulnerable Brands with marginal performance will stand out

Franchise Forecast for 2009
•F Franchisees — th hi there will be winners ill b i
Better performers will have better capital access Opportunities to buy under-performing units Opportunities to expand into other brands

Industry Market Share by y y Franchised Units
Travel Sports & Recreation Services-General Security Related Security-Related Retail Food Retail Stores Video Automotive Baked Goods Beauty-Related Building & Construction

Restaurants (Sit-Down) Real Estate Publications Printing Photographic Pet-Related Personnel Services Party-Related Maintenance Services

Business-Related Child-Related Clothing A Cl thi & Accessories i Computer Decorating & Home Design Education-Related

Lodging Health & Fitness Frozen Desserts Fast Food Restaurants

Franchise Forecast for 2009
•F Franchisees — th hi there will be losers ill b l
Marginal performers will exit in greater numbers Increased exiting will lead to increased litigation Capital access will be a big challenge

Home Equity Cash Out Levels
90 80 70 60 50 40 30 20 10 0 3rd Qtr 06
in billions

4th Qtr 06

1st Qtr 07

2nd Qtr 07

3rd Qtr 07

4th Qtr 07

1st Qtr 08

2nd Qtr 08

Franchise Forecast for 2009
•F Franchisees — th hi there will be opportunities ill b t iti
Rising unemployment usually stimulates development

Franchise Forecast for 2009
Annual Unemployment Rate, 1982 to August 2008
12 10 8 6 4 2 0

Franchise Forecast for 2009
•F Franchisees — th hi there will be opportunities ill b t iti
Rising unemployment usually stimulates development GenX-ers and GenY-ers are coming on

Franchise Forecast for 2009
Total Share by US generation

Millennial (born 1982 - 2000)

6 33

2 20

3 18

1 10

3 17

1 10

GenX (born 1965 - 1981)

40 45 58 51 31 38 32 11 2015 2 2006
Income

41 46

Boomers (born 1946 - 1964)

Silent (born 1925 - 1945)

38

Very old (born before 1925)

9 0 2006
Net Worth

20 1 2015 3 2006
Consumption

10 2015

Total New Franchise Units 2002 - 2007
The industries below grew faster than the average of all franchising between 2002 and 2006:
INDUSTRY Computer Products and Services Clothing & Accessories Publications Health & Fitness Child Related Child-Related Pet-Related Products/Services Decorating & Home Design Security-Related Real Estate Building & C Construction Services-General Retail Food Travel Education-Related Baked Goods AVG 41.3% 35.2% 19.5% 15.1% 13.3% 13 3% 11.9% 11.7% 8.0% 7.9% 7.4% 7.3% 6.2% 6.1% 5.2% 4.8% 5 year 273.6% 221.1% 99.6% 73.4% 64.7% 64 7% 56.7% 55.1% 34.5% 35.5% 32.8% 32.2% 26.8% 26.5% 22.6% 20.4%

Total New Franchise Units, , 2002 to 2007
400 350 300 250 200 150 100 50 0
in 1,000s

2002

2003

2004

2005

2006

2007*

*2007 figures based on estimates 2007

Implications – Capital Access
• Thi k Like A Banker Think Lik B k
Franchisors Financial strength g Management experience Operational performance

Implications – Capital Access
• Thi k Like A Banker Think Lik B k
Franchise System Unit Financial Performance Representation p

Implications – Capital Access
Percentage of Brands with FPRs 2005 to 2007 FPRs,

2005

2007

FPR 21%

FPR 30%

No FPR 79%

No FPR 70%

Implications – Capital Access
• Think Like A Banker
Franchise System Unit Financial Performance Representation System performance SBA statistics and Franchise Registry status Performance of sector and industry

Implications - Development
•A Arm franchisees with brand performance f hi ith b d f information for bankers • Consider experienced franchisees
Better access to capital They control more units

Implications - Development
Count of Franchisees by Number of Units Owned
160000 140000 120000 100000 80000 60000 40000 20000 0 1 Unit 2 to 5 Units 6 to 10 Units 11 to 25 Units 26 to 50 Units 51 to 100 Units 100+ Units

Implications - Operations
• Wh economy slows, naturally turn to When l t ll t t expenses • Benchmarking • Comparative performance metrics

Conclusions
• I th past 20 years, we overcame: In the t
S&L Crisis and junk bond collapse late 1980s Collapse of Barings 1994 C ll fB i Collapse of Long Term Capital Management 1998 9/11 WorldCom/Enron 2002

• Thi crisis is much deeper but it will pass This i i i hd b t ill • In 2009 franchising will grow • Greater need for proactive approach

FRANdata
Turning Franchise Data into Information

• Lender Risk Reports • Benchmarking • Competitor Analysis

• SBA Franchise Registry g y • Contact Lists • Franchise Research & Analysis


				
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posted:1/9/2009
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