DURHAM – There are any number of measures of how well the economy is doing today and how it might fare in the future.
One method is to track franchise businesses, and one of the premiere trackers is the RIFC 50 Index out of the University of New Hampshire.
Franchises are those established businesses, such as Dunkin’, owned locally by what are called franchisees. They buy the right to the brand and run it as a business independent of the franchisor.
“Franchising is a huge, huge business model,” said E. Hachemi Aliouche, director of the Rosenberg International Franchise Center (RIFC) at UNH’s Peter T. Paul College of Business and Economics.
“Franchises are very much part of the local economy,” he added. “They do the hiring, they do the advertising, they do all the local activities. A lot of local business franchisees are local people.”
The franchise center (https://www.unh.edu/rosenbergcenter/) was created in 2002 with a donation from William Rosenberg, the entrepreneur who founded Dunkin’ Donuts in 1950. He was a pioneer in name-brand franchising.
“He was also one of the founders of the IFA, the International Franchise Association,” said Aliouche. “Franchising was very big for him. He gave that gift to UNH to start the center, whose mission is for franchise education, scholarship and outreach.”
Aliouche, who has a PhD in economics from UNH, started in 2002 as co-director, becoming director in 2017.
A franchise business is distinct from a chain business, according to Aliouche. While a local Dunkin’ is a franchise, a local Starbucks is a chain, for example.
Starbucks corporate controls the entire experience for every store, according to Aliouche. “Dunkin’ is 100 percent franchised,” he said. “They don’t own a single store. Each store is owned by an entrepreneur. They own the store – they could own one, they could be what’s called multi-unit franchisees.”
A franchisor will train its franchisee, help find a location for a local store, supply the product, and establish procedures for the operation. “It’s called business format franchising,” said Aliouche. “It’s a turnkey product, basically.”
There is a long, long list of the businesses that are franchises. Some examples, besides Dunkin’, include McDonald’s, Subway, Marriott, Avis, Hertz and Ace Hardware, to name a very few.
The RIFC has three indices related to franchises: The quarterly RIFC 50 Index that tracks the financial performance of 50 public franchisors representative of the U.S. sector; the annual RIFC International Franchise Attractiveness Index, which ranks 131 countries according to their attractiveness as international franchise expansion markets for U.S.-based franchise organizations; and the RIFC Global Social Franchise Index, which ranks 131 countries according to the impacts social entrepreneurship and social franchising can have on the well-being of their citizens.
The RIFC 50 Index tracks how well – or how poorly – the economy is doing, as seen through 50 publicly-traded franchisors. In developing this index, Aliouche said they use stock activity as a measure “because they usually reflect the future expectations.”
“As a business person, as a decision maker – whether you’re an entrepreneur, whether you’re a corporate executive – you care about what’s going to come in the future, and stock prices actually reflect future expectations. So that was very, very important to us,” he said.
Their index is modeled on the Standard & Poors 500 Index, a measure of 500 of the largest companies listed on stock exchanges in the United States. It is one of the most commonly followed equity indices when it comes to taking the temperature of the nation’s economic health.
The RIFC index looks at 50 top performing franchises, with the data released each quarter.
Its most recent index for the first quarter of 2021 shows a 7.3 percent gain over the fourth quarter of 2020, a sure sign of economic recovery from the COVID-19 pandemic. In fact, according to Aliouche, the franchise sector might be recovering at a faster pace.
He points to the fact that the franchise index is showing better results than the S&P 500.
While the franchise index was up 7.3 percent in the first quarter, the S&P 500 was up 5.8 percent. Compared to the same period a year ago, the franchise index was up 57.8 percent while the S&P as up 53.7 percent.
“The fast ramp-up of the US Covid-19 vaccination program and the prospect of an approaching reopening of the economy, particularly in travel and hospitality industries, fueled a surge in the values of most components of the Index,” the latest report stated.
During the worst throes of the pandemic, according to Aliouche, the franchise index was performing worse than the S&P because a lot of the franchise index is made up of companies related to the hospitality and leisure industry that was hard hit by travel restrictions brought on by the pandemic.
With a loosening of those restrictions as more Americans become vaccinated, the hospitality and leisure businesses are rebounding … and then some because of the pent-up desire to get out and do things again.
“There’s going to be a big upsurge in travel, in hospitality, in hotels and restaurants,” said Aliouche.
With government subsidy checks and with consumers not going anywhere because of pandemic restrictions, Aliouche said he feels people have a lot of unspent money in their pockets. “I think there will be a lot of spending on going out, traveling and hotels, restaurants, etc.,” said Aliouche. “These are all heavily franchised sectors.”
The other part of franchises that plays into the local economy is its opportunity for the workforce, according to Aliouche, particularly for those people who dream of owning their own businesses one day.
Flipping burgers at a McDonald’s may seem a low-level entry job, but Aliouche sees it as an opportunity.
“It’s an entry point,” said Aliouche. “They get trained, they learn skills. Hopefully, these people grow and move on to management and eventually become franchisees. A lot of companies actually encourage that. They give preference to people who have spent a lot of years with them.”
“Really then you’re a business owner, you’re an entrepreneur,” he added.