Each spring, the International Franchise Association and FRANdata, a leading market research firm, produce an annual Franchising Economic Outlook. Among the findings in 2022, Arizona ranks third in predicted franchising growth, with the number of establishments expected to reach nearly 20,000, a 3% jump over 2021. But that’s not all. The report also predicts the number of people employed in the franchising industry will increase by nearly 4%, to 211,391, all told contributing almost $13.5 billion to the state’s economy — a 5.8% increase.
So, what makes the greater Phoenix area, and Arizona in general, such an attractive target for franchise growth?
Lies, Damned Lies, and Statistics
There are plenty of reasons for optimism, but there’s also some hype to discredit — starting with the Great Resignation. While it’s true that people have been quitting their jobs at record numbers, the majority of these individuals aren’t throwing off the yoke of corporate America to jump start entrepreneurial ventures. Most simply see an active buyer’s market and want to use the opportunity to salary shop. And, while it’s also true that the number of new business applications has soared, driven by the COVID unemployed, the majority of these filings is for extremely small outfits, not the kind destined to move the needle on revenue and hiring. Franchise establishments are much more substantial, but the target market that typically enters this part of the entrepreneurial arena is college educated professionals with some experience on their resume. And their unemployment rate today is extremely low, as they’re satisfied with their “safe” corporate positions.
Buckling Up for a Downturn
What’s likely to spur franchise growth in Phoenix and the rest of Arizona is a recession. One quarter of negative GDP growth is already on the books and the follow-up is likely just around the corner. If and when it does materialize, white-collar unemployment will jump, producing an uptick in entrepreneurial futures. In the last two months, there’s been a 50% increase in franchising interest — because the smart ones can see this coming and want to get ahead of the curve.
Advantage: Arizona
Maricopa County is the fastest growing county in the U.S., according to the most recent census. Just between April 2020 and July 2021, Maricopa County added 76,000 residents, according to the U.S. Census Bureau. The growth in the West Valley is reminiscent of the Golden Age of franchising from the late ’50s to early ’70s — when construction of the Interstate Highway System drove franchise growth along the exits. Every new exit saw a new cluster of franchise business units. Heading west on I-10 toward California should see a similar pattern. The consistent population growth drives economic growth (let’s give ACA efforts a nod here, too). It’s not just local businesspeople who want a slice of this economic pie; big-money investors across the country want to get in on the action, too.
The Geographic Attractiveness of Phoenix – We Have Great Real Estate
The Greater Phoenix area is mostly flat — mostly lacking natural barriers and features that impede transportation and business corridor planning. Unlike other places where rivers have real water, our transportation grid is an evenly spaced rectangular pattern of numbered streets and avenues with fabulous retail development at the major intersections.
Whether local or out-of-state, franchisees are likely to find a great location for their new franchise business. It almost seems too easy! What many come to realize too late is that so do their top three competitors … at the very same intersection. The Phoenix area is one of the most competitive retail markets in the country. What works in other markets doesn’t always produce the same metrics in the Phoenix market. This reality has brought undesired results for some franchisees, especially those out-of-state big-money investors. The boutique fitness and food service categories are particularly susceptible. There are some notable mega brands brought from out-of-state, like Portillo’s and White Castle, but the investments required for these is beyond most.
Perhaps a location-based franchise requiring real estate space isn’t the best franchise choice; for many, a service-based franchise is best. These opportunities usually require lower investments with lower overhead. They can also be scaled without the incremental investment of another real estate location.
Inside local information from a franchise broker can prove invaluable in navigating the thousands of franchise opportunities offered today in America. As an example, out-of-state franchise brokers are still recommending a particular very well-run health and beauty franchise system to their clients. The local insider franchise broker, who has seen the confidential real estate map with revenue projections, knows all the A and B sites are taken. Only C sites, with much lower revenue expectation, are still available.
A final word of advice for would-be franchisees: Yes, there is an optimal time to launch a new business of your own. It’s whenever you, and you alone, are personally ready to become a business owner.
Kent Craven is the market president of FranNet of Arizona, the largest independent franchise consultancy in the United States. He brings 35 years of closely held, family business ownership experience to his consulting practice, providing prospective franchise owners with the greatest amount of confidence in pursuing their own business ownership dreams. The longest tenured FranNet broker, Craven has helped hundreds of entrepreneurs become first-time business owners.
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