The International Franchise Association (IFA) recently released the results of its 2024 Annual Franchisee Survey. In this article, national franchise lawyer Jeffrey M. Goldstein shares his thoughts on the IFA’s latest data.
Each year, the IFA surveys both franchisors and franchisees to gain insight into the state of the franchise industry. It publishes the results of these surveys in two separate reports. Here are some of the most notable insights from the 2024 Annual Franchisee Survey:
Inflation Continues to Be a Factor for Franchisees
According to the IFA’s survey data, 87 percent of franchisees report experiencing “a moderate to substantial impact from inflationary pressures” in 2024. The IFA notes that this is consistent with the data it collected in 2023. As a result, the IFA reports that inflation is one of “[t]he biggest challenges facing franchisees today,” as inflation contributes to both increased operating costs and reduced customer demand.
Critically, not only is inflation having a major impact on the substantial majority of franchisees, but it is also leading to widespread negative growth. The IFA reports, “80 [percent] of franchisees experienced lower business earnings in the past year.” Specific factors that franchisees attributed to their reduced earnings last year include:
- Labor costs (though fewer franchisees identified labor costs as a significant challenge in 2024 than in 2023)
- Insurance costs
- Costs for inventory and supplies
- Costs for marketing and advertising
What are franchisees doing to cope? According to the IFA:
“While increasing prices is the most common approach to managing rising costs, franchisees have adopted innovative strategies, such as implementing new technology to enhance operational efficiency.”
It is important to note, however, that inflation is not impacting all sectors of the franchise industry equally. The IFA’s 2024 Annual Franchise Survey identifies the following six sectors as having the highest rate of “substantial impact” from inflation:
- Sit-down restaurants (90 percent)
- Baked goods (69 percent)
- Quick-service restaurants (63 percent)
- Maintenance services (61 percent)
- Beauty-related (53 percent)
- Health and fitness (50 percent)
Overall, the IFA’s data indicate that 51 percent of franchisees report experiencing a “substantial impact” from inflation in 2024 (up from 46 percent in 2023), with just two percent reporting no impact whatsoever (up from one percent in 2023).
Concentration Within the World of Franchising
The IFA reports having 1,407 respondents for its 2024 Annual Franchisee Survey. While these respondents are not necessarily representative of the franchise industry as a whole, they provide at least some insight into the industry’s current state. The makeup of the IFA’s survey respondents suggests a certain amount of concentration, both geographically and in certain industry sectors:
- Nearly a quarter of all franchisees who responded to the survey (24 percent) were from California, Florida, and Texas. Texas accounted for the largest single percentage (9.1 percent), while well over a dozen states represented less than one percent of the survey’s respondents.
- Health, fitness, and beauty franchisees accounted for a quarter of all respondents (25 percent). This includes 13 percent in health and fitness and 12 percent in beauty. Decorating and home design accounted for another 12 percent, while general retail was the only sector to account for 10 percent or more.
- More than half of all franchisees who responded (57 percent) own a single franchise. Thirty-three percent of respondents reported owning between 2 and 10 units, while just three percent reported owning 51 units or more.
Notably, the number of multi-unit franchisees is growing. In 2023, 55 percent of survey respondents reported owning a single franchise. This continues a trend we have seen in recent years as well.
Franchisees’ Most Significant Business Challenges
While inflation was reported to be among franchisees’ most significant business challenges, it was not quite the most significant business challenge that franchisees reported in 2024. While 25 percent of franchisees identified inflation as their most significant business challenge, 26 percent identified finding and retaining employees as their most significant hurdle to success. Notably, however, the survey results separately list “slowdown in demand from customers/reduced customer traffic” as being 22 percent of franchisees’ most significant business challenge, and this is almost certainly inflation-related.
After the top three, the percentages of franchisees’ other “most significant business challenges” drop off significantly. According to the IFA’s data, the next six on the list are:
- Competition from other businesses (7 percent)
- Access to capital and funding (6 percent)
- Regulatory and compliance issues (5 percent)
- Other business challenges (5 percent)
- Balancing work-life responsibilities (4 percent)
- Adapting to technological advancements (1 percent)
To be clear, these figures do not mean that these aren’t issues for a larger percentage of franchisees—rather, these just aren’t the most significant challenges that the majority of franchisees face on a day-to-day basis.
What Do Current Franchisees Expect from the Future?
With all of this in mind, what do current franchisees expect from the future? According to the IFA’s data, 65 percent of franchisees expect their costs to increase further over the coming year, compared to 51 percent in 2023. Franchisees in the beauty, child-related, and maintenance services industries were among those to have the greatest pessimism, with between 73 percent and 80 percent of respondents in these sectors expecting further cost increases throughout 2025.
Now, what does this mean for you?
While inflation and other factors can have wide-reaching effects, every franchise is unique. While some franchisees are struggling, others are growing and expanding. Ultimately, whether you currently own a franchise or are thinking about buying a franchise in 2025, you will need to make informed decisions based on your specific circumstances. If you need advice in order to make informed decisions, we invite you to get in touch today.
Contact National Franchise Lawyer Jeffrey M. Goldstein
To speak with national franchise lawyer Jeffrey M. Goldstein about your franchise (or franchise opportunity), please call 202-293-3947 or tell us how we can get in touch online. We are more than happy to schedule your free initial consultation at a time that is convenient for you.
