Lessons Learned in Franchising in 2018 Robert Cresanti, CFE President & CEO
International Franchise Association • Founded in 1960, IFA is the world's oldest and largest organization representing franchising worldwide • IFA’s Mission: to protect, enhance and promote franchising • IFA members include franchise companies in over 300 different business sectors, individual franchisees, and suppliers that provide products and services to the industry
How did we get to where we are today? Source: Pew Research
What we learned: major wins are possible • • Passed H.R. 3441, Save Local Introduced H.R. 4473, Veteran Business Act , in the House. 8 Entrepreneurs Act of 2017 , in the House, and S. 2950 Democrats voted in favor, record number in four years companion bill in the Senate • • DOL rescinded its joint employer Introduced H.R. 6695, guidance in June 2017 Trademark Licensing Protection Act , in the House • Over 50 in-district events and • meetings have been held with Increased number of states with Members of Congress and their proactive joint employer local business communities to legislation to 19 . Fended off discuss joint employer discriminatory minimum wage increase in Saint Paul , currently • Met FranPAC fundraising target holding the line in NYC of $1.2 million for the cycle • Multiple events with IFA leaders • Broadened giving to 70/30 and members with the Republican to Democratic split President, Congressional leadership , and cabinet officials • Saved franchised businesses an including Sec. Acosta, Sec. estimated $8 billion in federal Mnuchin, SBA Administrator tax savings each year as part of McMahon , and many more TCJA • FASB issued guidance on • Administration rules on AHPs financial accounting standards and Association 401(k)s which saved more 104,000 • NLRB & DOL rulemaking on franchises from bankruptcy , joint employer and 1.1 million jobs , in the next three years • IFA will soon announce significant economic research as part of the regulatory process
But there are significant challenges ahead • A Democratic House and a Republican Senate will likely lead to greater gridlock for all non-essential legislation • While there may be areas of bipartisan compromise on infrastructure, education, and workforce development, many of the bills passed by this Congress will reauthorize important programs or extend the nation’s creditworthiness • To further muddy the legislative waters, the shadow campaign for the 2020 elections is well underway – More than a dozen Democrats are rumored or announced to be running for their party’s nomination • At the state level, we can expect similar legislative issues as we expect at the federal level, namely the opposition to non-solicitation clauses, wage issues, and potential franchise relationship legislation
• The Democratic House will aggressively use its oversight and subpoena powers over federal agencies – including those who have been focusing on franchise issues like joint employment – to slow down the Trump Administration’s agenda The 116 th Congress • With a base that largely supports organized labor, House Democrats will want to forge ahead with so- called “pro - worker” legislation, such as the Workplace Democracy Act or other bills that also codify expanded joint employer standards, promote a $15 per hour minimum wage, address non- solicitation clauses, or mandate card check.
• IFA has worked to strengthen and increase our relationships with lawmakers on both sides of the aisle – Increased bipartisan support for our priorities – Blue Dogs, New Dems, and Diversity caucuses all key to defensive posture • IFA has strengthened our relationship with incoming senators Josh Hawley in Missouri, Mike Braun of Indiana, Rick Scott of Florida, and Martha McSally of Arizona • Senate map in 2020 favors Democrats – GOP defending demographically changing states like GA, NC, CO where Trump’s approval is lower than 2016 • Continue to work closely with the Key takeaway: build a administration on regulatory changes that benefit franchise businesses • We anticipate continued positive regulatory “Gatehouse Defense” news from the administration, particularly related to the joint employer standard
These are important successes and strategies, but we can’t do it without you!
Text “ FAN ” to 52886 to join the Franchise Action Network and protect franchising across the country!
Market Metrics: Unit Growth 500,000 14.0% 450,000 12.0% 400,000 10.0% 350,000 8.0% 300,000 % Change Units 6.0% 250,000 4.0% 200,000 2.0% 150,000 0.0% 100,000 -2.0% 50,000 - -4.0% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017* Food Non-Food Total Unit Change * Including estimates due to a lag in data availability. Courtesy of FRANData
New Brands Entering the Market 400 350 300 250 200 150 100 50 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Courtesy of FRANData
Top Sectors for New Franchise Brands • 65% of brands entering the market are in nonfood and service sectors Top Ten Sectors for New Franchise Brands Health - General Frozen Desserts Fast Food - other Pet-Related Cosmetic Aids/Services 0 20 40 60 80 100 120 Courtesy of FRANData
M&As in Franchising M&As by PE Firms in Franchise* 1,400 $450 60 $400 1,200 $350 50 1,000 $300 40 800 $250 30 $200 600 $150 20 400 $100 10 200 $50 0 $0 0 Dec-12 Apr-13 Aug-13 Dec-13 Apr-14 Aug-14 Dec-14 Apr-15 Aug-15 Dec-15 Apr-16 Aug-16 Dec-16 Apr-17 Aug-17 Dec-17 Apr-18 2012 2013 2014 2015 2016 2017 * Only include PE firms acquiring franchisors. Deal Volume Aggregate Deal Value (bn) Courtesy of FRANData
February 24-27, 2019 | Mandalay Bay, Las Vegas | www.franchise.org/convention
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