franchise lenders

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