By Jim Sammon & Melissa Yasinow
After experiencing pandemic-induced disruption, the franchise industry expects a strong economic rebound for a post-COVID 2021. According to the International Franchise Association (IFA), the franchise industry is likely to bounce back to pre-pandemic levels by the end of the year. Fueled by growth in the retail, food and services sectors, franchise employment is expected to rise by more than 10%, with a projected 800,000 new jobs. The IFA also expects that more than 26,000 new franchised locations will be added by year’s end, more than offsetting the nearly 20,000 units lost during the pandemic.
Franchise Industry Small Business Concerns
With roughly half of all franchisees operating only one or two locations, small business concerns are paramount for the franchise industry. The updated Paycheck Protection Program (PPP), which provides businesses with a Second Draw PPP Loan, has been a lifeline for many franchise owners. As we previously discussed, the Second Draw has different requirements from the first PPP loan program. For example, those businesses assigned an NAICS code specific to Accommodation and Food Services, which includes restaurant and food service franchises, may request larger Second Draw PPP loans than other industries.
Another concern for franchise owners is the $1.9 trillion coronavirus relief package, currently known as the American Rescue Plan. Although its future is uncertain in the Senate, a provision was recently added to the aid package in the House of Representatives that would increase the federal minimum wage from $7.25 to $15 by 2025. The International Franchise Association has opposed the proposed minimum wage increase, and the National Restaurant Association has warned that 82% of operators expect initial wage increases to limit the post-pandemic recovery. This balancing act of raising the minimum wage for the first time in decades, amidst a global pandemic and rising federal deficits, will prove a daunting task for the new Biden administration. Currently 29 states, including Ohio, have minimum wages higher than the federal minimum wage.
If you have questions about how pending COVID-19 legislation, including the updated Paycheck Protection Program, may impact your franchise, please do not hesitate to contact Jim Sammon (JPSammon@kjk.com / 216-736-7235), Melissa Yasinow (may@kjk.com / 216-736-7205), or any other members of our Restaurant and Hospitality Team.