2014 Franchise Industry Economic

& Public Policy Forecast

Steve Caldeira, CFEPresident and CEO

International Franchise AssociationMarch 18, 2014

• $38 Billion in New Economic Output

• 4.7% Growth

• Nearly 13,000 New Establishments

• 1.7% Growth

• Nearly 200,000 New Jobs

• 2.3 % Growth

Franchise Growth Is Expected To Increase In 2014, But Remains Below Potential

• Source: IHS Global Insight 3

• 2014 vs. 2013P

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14-3-26Franchise Growth Rates For Output, Establishments, And Jobs

• 193,000 new jobs

• 13,000 new business establishments

• $38 billion more in economic output

However, while growth is improving, it is still below pre-recession trends.

What do these numbers mean?

In 2014, output and establishment growth is expected to increase, while employment growth remains steady.

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Franchisors Expect The Economy And Business Prospects To Improve In 2014

• Source: Franchise Business Leader Survey

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14-3-2614-3-26View Of 2014 Economy Compared To 2013

Business Prospects

Outside of their view of the economy, franchisors also see improved business prospects.

• 76 percent expect business to be better in 2014.

• 89 percent expect an increase in sales compared to 78 percent a year ago

• 56 percent plan to hire in 2014 compared to 48 percent a year ago

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However, Franchisees' Economic And Business Outlook For 2014 Is Worse Than It Was For 2013

• Source: Franchise Business Leader Survey

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14-3-2614-3-26View Of 2014 Economy Compared To 2013 Business Prospects

Franchisees also have diminished business prospects in 2014, one reason is the ACA.

• Only 31 percent expect business to be better in 2014

• More than 50 percent plan to hire in 2014

• However, unlike franchisors, 54 percent plan to reduce full-time staff due to the ACA

• 2014 Optimism

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Primary Goal“Protect franchise business

model”

Top Tier Issues:• ACA relief• Workforce

regulations• SBA Lending

Second Tier Issues• Tax Reform• Immigration• Veterans in

franchising• Cybersecurity

Health Care

Health Care• Focus on Affordable Care Act implementation• Seeking legislative and changes to reduce

impact on IFA members1. Increase definition of full-time employees from 30 hours/week

to 40 hours/week.

2. Threshold of 50 Full-time Equivalent (FTE) employees to 50 Full-time Employees.

3. Taxes on health insurers are passed on to consumers in the form of higher premiums.

Health Care

Health Care• Implementation webinars for IFA members• IFA Health Care Web site launched to assist

members in understanding the impact of ACA• http://makingsenseofhealthcare.org/

Tax Reform

Taxes• Getting closer to comprehensive tax reform

– Significant progress has been made towards comprehensive tax reform legislation. Draft language has been circulated in the Senate, and we expect a House bill to be introduced in the first half of 2014.

– Reform must address both corporate and individual rates, and lower overall tax rates, possibly at the expense of some business deductions.

– Comprehensive tax reform most likely dead for 2014. Several reasons – Unpopularity of Obamacare. The majority of Americans and GOP will continue to exploit this weakness through the 2014 election cycle.

Labor Regulations• Recent victory – NLRB declined to appeal

decision that invalidated employee rights poster requirement.

• U.S. Supreme Court recently heard case regarding Obama recess appointments. Decision expected this spring.

• Nominee for Wage & Hour Division Administrator poses significant threat to franchising

State Government Relations & Public Policy• Preventing damaging franchise relationship

legislation that would regulate transfers, approved suppliers, renewals and other items normally negotiated in franchise agreementsØ Maine LD 1458Ø Similar legislation in Michigan, Massachusetts, Maine, New

Hampshire, Puerto Rico and California

State Government Relations & Public Policy

• Clarifying independent contractor status of franchiseesØ Massachusetts, Oregon, New Jersey, Connecticut,

Washington, Minnesota, Rhode IslandØ Proactive engagement reduces frivolous litigation and

undercuts future franchise relationship bill efforts

• IFA’s Political Action Committee• Achieved historic growth over last several

years – Over $1.2 million last election cycle

• Supports pro-franchise Members of Congress and candidates

• Helps ensure the legislative and regulatory success of industry

FranPAC Update

Media & Public Relations• Earned media outreach to support advocacy efforts on state

issues, comprehensive tax reform; health care, and immigration reform; and Fast Food (union-sponsored) Walkouts

• ADP jobs report, FBI, Economic Outlook, IFA/US Chamber joint commissioned research on ACA and minimum wage and other policy related - research is supporting our efforts to educate policy makers and the public about the importance of franchising to the economy

• Utilizing research to promote franchising (FRANdata partnership)

– Credit access report (April)– Emerging franchise concept report (TBD)– Average total investment report (June)

Franchise Relations Best Practices Task Force• Process and steps:

– The two Working Groups developed a list of questions, perceived issues and potential solutions/action steps

– The Groups identified areas with greatest agreement, some agreement and no agreement. Working within these parameters, IFA identified new policies and programs to supplement association programs to address some of the potential issues

Franchise Relations Best Practices Task Force

In September 2013, IFA adopted the recommendations from the task force to strengthen Franchise Relations which include:

• Better Education of Prospective Franchisees – Improve Franchise Disclosure - new online course focused on disclosure and key terms in agreements

• More education on Franchise Relations• IFA Code of Ethics, Brand Stewardship

and Alternative Dispute Resolution - Expanding dispute resolution services - www.ifaresolve.com

• Governance – increase efforts to recruit franchisee leaders – Azziz Hashim – Chairman in 2016, added two new franchisees to IFA Board for 2014 for a total of 8 (highest number to date)

Franchise Relations Best Practices Task Force

• Communications – staff and volunteers working to ensure IFA is the collective voice of franchisees and franchisors

• Research – using focus groups and public opinion research to understand views and concern about Franchise Relations issues

• Clarifying Terms in Franchise Agreements – adopted a Statement of Guiding Principles to provide more clarity and transparency – creating a summary of franchise offering information for the IFA web site for member companies

• New VP, Franchisee Engagement & Industry Relations will report to President & CEO

VetFran Update• 620 VetFran member companies • 151,557 veterans, military spouses

and wounded warriors have started careers in franchising, including 5,192 new veteran franchise business owners, since 2011

• Partnerships:– White House Joining Forces Initiative– U.S. Chamber of Commerce/Chamber

Foundation Hiring Our Heroes– U.S. Department of Veterans Affairs– The Small Business Administration

VetFran: Upcoming

• Chairman’s Corps ($15K) and Sponsorships to sustain VetFran

• Capital One Award for Small Business Veteran and Military Spouse Employment at awards dinner hosted by the Chamber’s Foundation Hiring Our Heroes.

• One-year progress report released Veterans Day, 2013

• VetFran sessions at Franchise EXPO’s, convention, and with VetFran member companies.

• IFA Convention – February 22-25, 2014 • More than 3,500 attended (largest non-

Vegas)

International• 90 percent of members believe international

growth is important to their future• 79 percent operate internationally• Trade missions in 2013 to:

a. Middle East – UAE, Egypt, Jordan, Qatarb. Africa – South Africa, Kenya, Nigeriac. China – Beijing, Chongqing, Nanjing, Dalian

• Trade missions in 2014 to:a. Southeast Asia – Thailand, Malaysia, Philippines

b. India

c. Mexico

Discussion