The Franchise Industry Is Weathering The Shutdown, But Concerns Are Growing

Oct 9, 2013

Crossposted from the International Franchise Association’s blog.

Entering its second week, the government shutdown continues to hurt the U.S. economy. Now, with the debt ceiling approaching, the International Franchise Association reiterates its call for Congress to pass a Continuing Resolution to fund the federal government and raise the debt ceiling. Dealing with our long-term entitlement challenges and our growing debt is critical, but the government shutdown and uncertainty over raising the current debt ceiling is hurting franchises today.

As reflected in the chart below, the Franchise Business Index, a gauge of the overall health of franchise sector, took a dive during the three-month debt ceiling crisis in 2011, falling in July, flat-lining in August and going negative in September.

“Franchise business owners want their elected officials on both sides of the aisle to put aside the partisan rancor and negative rhetoric so we can get this economy moving again,” said IFA President & CEO Steve Caldeira. “We have seen this happen before, and without question Congress and the administration’s inability to come to agreement on long-term economic policy puts downward pressure on job growth and franchise development in the franchise sector.”

We’ve collected stories from IFA Members to illustrate the impact on the ground. For franchises, heightened uncertainty, reduced consumer power, and tighter credit conditions will be headwinds for the sector if the shutdown continues. However, franchises, as they have done throughout the weak recovery, report that they are weathering the storm, finding ways to grow and create jobs.

Share with us your stories by email or twitter. Tweet at @Franchising411 or using the hashtag #FranStories.

David Leonardo, Chief Development Officer At Wild Wing Café in Florida, Is Seeing A Boost From Furloughed Workers Looking For An Escape, But Is Concerned About Impact On Spending If This Continues. “Amid the government shutdown, people are seeking an escape at times, and Wild Wing Cafe can be that for a lot of people — including government workers. We anticipate this trend in restaurant revenues continuing, however with government uncertainty, we know that can impact spending habit. We know people could hold back from going out if they don’t know what lies ahead — but we’re doing everything in our power to support their need for an escape from rigors of everyday life.”

Fact: With the shutdown, 800,000 federal workers are furloughed without pay. That’s 800,000 people with less money to spend on travel, food, services and goods from franchise companies. Further, with these workers at home, personal services such as home and lawn care are also taking a hit.

For Jennifer Jackson, Director Of Development For Hungry Howie’s Pizza in Michigan, The Shutdown’s Impact On The SBA Has Stalled The Launch Of A New Business. “The government shutdown has greatly impacted Hungry Howie’s Pizza franchisees, as there are not any loans going through the SBA. For example, we have a development deal in the Houston area, and are set to begin operating, but due to the government shutdown, our franchisee is unable to get approval on the Franchise Registry nor get the funding to begin the process.”

Fact: Access to loans is already a key concern for franchises with an estimated lending shortfall of more than 9 percent in 2013. The shutdown compounds this existing problem as every day the government is unfunded, $13 million in Small Business Administration (SBA) loans to small business are foregone.

Matt Patinkin, Owner Of Auntie Anne’s Pretzels in Illinois, Is Concerned About The Impact Of Increased Uncertainty On Customers. “The government shutdown creates uncertainty on the part of consumers.  The longer the shutdown continues, the greater this uncertainty becomes, and that causes our customers to hold back.  We’re a consumer driven society, so if that happens we all suffer!”

Fact: Even prior to the shutdown, self-reported daily spending dropped $11 to $84, the lowest level since February.

While Franchisees Have Solid Plans And Are Weathering The Shutdown, The Impact Of Cuts To Government Contracts Can Be Felt Several Layers Down According To Jeff Connally, CEO and President of CMIT Solutions in Texas, An IT Consulting Franchise. “We have more than a handful of franchisees in the D.C. market, many of which who have clients with government contracts. When a shutdown like this occurs, the trickle down impact can be felt several layers down. Our franchisees have been in regular contact with their clients, and we make ourselves indispensable, but this certainly adds pressure that our clients did not expect for this year. Our franchisees have a solid plan in place and are weathering this nicely. Hopefully this won’t be an issue for very long.”

Fact: The ripple effects of the government shut down have extended as far as Antarctica, where scientists who were set to begin studying the area are now on hold.

For Roger Murphy, CEO And President of Murphy Business & Financial Corporation in Florida, A Business Brokerage Franchise, Increased Uncertainty Reduces Business Transactions. “When there is uncertainty in the air, business transactions take a hit. This event, coupled with other factors at play now, i.e. the Affordable Care Act, make planning for buying a business even more difficult.”

Fact: From September 30th to October 6th, Gallup’s Economic Confidence Indexexperienced its largest drop since the week of Lehman’s collapse.

Stephen Dixon, Chief Development Officer Of Childrens Lighthouse Learning Centers in Texas, Hopes His Company’s Education And Child Services Help Furloughed Government Employees In Their Time Of Need. “Our franchisees across the country build deep, meaningful relationships with the families they serve. Franchisees certainly know when stresses such as government shutdowns keep people from working. Uncertainty is amidst, but we are always there for our families, helping when we can to make certain that our education childcare is available to them. Our franchisees appreciate their loyalty and return the favor in unforeseen circumstances such as these.”

Fact: In addition to the 800,000 federal workers furloughed without pay, another 1.4 million government workers may see paychecks delayed.

Call your Senators and Representatives and let them know how the government shutdown is impacting YOUR business and the franchise industry. Call (202)224-3121 and ask for your Members’ offices.

Don’t know who your Members of Congress are? Find out here

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