The International Franchise Association (IFA) recently released its Franchising Economic Outlook for 2025. The Franchising Economic Outlook is an annual report that looks at historical data and provides forecasts and projections for the year ahead based on “quantitative and qualitative information relevant to franchising in the United States.” Here are some key insights and takeaways from the 2025 report from national franchise attorney Jeffrey M. Goldstein.
Franchising “Outperformed Expectations” in 2024
According to the IFA, “[i]n 2024, franchising outperformed expectations for a second consecutive year, with establishments estimated to have increased by 2.4%, exceeding FRANdata’s 1.9% projection.” Based on the report, some of the key drivers of the franchise industry’s growth over the past year have included:
- Robust customer spending
- Improvements in labor availability
- Advancements in automation and other technologies
The report also indicates that franchise employment growth increased by 2.2% in 2024, while output growth increased to 3.9%. These figures are roughly in line with those from prior years, although we saw some exceptional figures in 2021 when the franchise industry bounced back from the early economic impacts of the COVID-19 pandemic.
The IFA Expects the Franchise Industry to Maintain its Growth in 2025
The 2025 Franchising Economic Outlook indicates that the IFA expects the franchise industry to maintain its growth over the coming year. With that said, the report also states that 2025 is “shaping up to be a pivotal year for franchising and the broader economy . . . [with l]ower interest rates . . . expected to provide relief for franchise owners, reducing capital costs and potentially driving expansion.” The IFA’s core projections for 2025 include:
- Growth in Franchised Establishments: 2.5%
- Growth in Franchise Employment: 2.4%
- Growth in Franchise Output: 4.4%
If these projections prove accurate, the total number of franchised establishments in the United States will exceed 850,000 by the end of the year. There would be more than nine million employees working in the franchise industry, and total output from franchising would exceed $936 billion.
Six of the “Top 10 States for Franchise Growth” Are On the East Coast
The IFA’s recently-released Franchising Economic Outlook includes a list of the “Top 10 States for Franchise Growth in 2025.” Notably, six out of the “Top 10” states are on the East Coast, with two others being adjacent to East Coast states:
- Georgia
- North Carolina
- Virginia
- Arizona
- South Carolina
- Pennsylvania
- Tennessee
- Florida
- Colorado
- Maryland
The report notes that the Southeast region has been the largest and fastest-growing region for several years. It also notes that rising disposable income, moderating inflation, and expansion into “high-growth markets” are among the factors that are likely to drive growth within the industry overall.
Seven States Are Forecast to Experience Negative Growth
While the IFA is forecasting strong growth generally, the 2025 Franchising Economic Outlook identifies seven states in which negative growth is expected over the coming year. According to the report, the following states are anticipated to see a reduction in their total number of franchised establishments from 2024 to 2025:
- Hawaii (-5.5%)
- Illinois (-2.4%)
- Iowa (-0.6%)
- Minnesota (-0.4%)
- Montana (-0.2%)
- New York (-1.2%)
- Wyoming (-2.7%)
Additionally, the IFA forecasts that Alaska, Mississippi, Rhode Island and South Dakota will experience growth of less than one percent. Notably, several states that experienced a reduction in franchised establishments from 2023 to 2024 (including Alaska, California, North Dakota, Rhode Island and Washington) are forecast to experience positive growth from 2024 to 2025.
Personal Services and Retail Are Expected to Be Among the Fastest-Growing Industry Sectors
According to the report, “[p]ersonal services and retail food, products and services are expected to be the fastest-growing industries in 2025, increasing by 4.3% and 3.5%, respectively.” This includes 2.2% growth within the quick-service restaurant (QSR) category. Notably, the report anticipates another year of sluggish growth in the real estate sector (at just 0.7%), with “supply challenges . . . lead[ing] to comparatively slower growth within the sector.”
Franchising “Will Need to Adapt to . . . Evolving Economic Conditions”
Like all industries, the franchise industry will be affected by macroeconomic changes in 2025. We don’t yet know exactly what the long-term impacts of these macroeconomic changes will be, and, as the IFA’s report notes, “[f]ranchising will need to adapt to… evolving economic conditions” over the coming year.
As the report also notes, “[h]igh-income consumers are expected to be key in sustaining and driving overall demand in 2025 [because t]his group is less affected by inflation or elevated prices.” This is particularly important given that franchising, “will likely face external pressures in 2025, including potential for tariffs and geopolitical tensions, which could pose challenges for supply chains.” This almost certainly has different implications for different segments within the franchising industry—and this is something that prospective franchise buyers may want to consider when conducting their due diligence and making their buying decisions.
What Does All of This Mean for You?
If you own a franchise, or if you are thinking about buying a franchise in 2025, what does all of this mean for you? The short answer is, “It depends.”
While the IFA’s forecast is positive overall, the 2025 Franchising Economic Outlook makes clear that certain industry sectors (and even certain segments within these sectors) have a better outlook than others. For current franchisees, the best course of action will generally be to stay the course—to stay in compliance with their franchise agreements and continue making informed decisions as best they can. For prospective franchisees, making an informed buying decision will be essential (as is always the case)—and this means conducting thorough due diligence, seeking professional help as necessary, and focusing on their own personal realistic likelihood of success.
Schedule a Call with National Franchise Attorney Jeffrey M. Goldstein
Jeffrey M. Goldstein is a national franchise attorney who has well over 30 years of experience representing current and prospective franchisees. If you would like to speak with Mr. Goldstein about your existing franchise or a franchise opportunity, please call 202-293-3947 or contact us online to arrange a free consultation.
