What Arizona’s Economic Outlook Means for Franchisors Article originally posted on HERE on July 7, 2023 This month, 1851 is taking an in-depth look at ALEC-Laffer’s 16th annual “Rich States, Poor States” Economic Competitiveness Index and how it can be useful to franchisors as they expand their footprints. The report ranks all 50 states based on two criteria: 1) Economic Outlook, a state’s current standing in 15 state policy variables; 2) Economic Performance, a retrospective measure based on a state’s performance over the past 10 years. For the state of Arizona, these rankings reveal a lot about where the state economy is going and where there is opportunity for their economy to grow. 2023 Economic Outlook Ranking: 3 2023 Economic Performance Ranking: 3 The State The economy of Arizona witnessed a strong revival during the latter part of 2022 after a significant slump in the initial half of the year. Despite this recovery, projections for 2023 suggest a moderate growth rate of 1%, attributed to factors such as high inflation and interest rates, a dampened housing market, and softer consumer spending patterns. Arizona’s population as a whole is growing faster than the U.S. average and, according to the U.S. Census Data, Phoenix was the fastest-growing big city in the United States between 2010 and 2020. A new study also shows that Arizona is the sixth hottest market for new residential construction in the U.S. Still, while there were notable population gains due to migration in the previous year, this trend is likely to decelerate as the state’s economy stabilizes. Employment growth is also forecasted to slow down, with an anticipated payroll growth of 1% in 2023 compared to 4.2% in 2022. The unemployment rate is predicted to rise to an average of 4.4% in 2023, an increase from the 3.8% seen in 2022. Despite these challenges, Arizona, like the rest of the country, experienced substantial growth in total personal income during the second half of 2022, although the pace of growth is expected to slow down in 2023. Making Sense of the Data What does this mean for Arizona’s economy? To start with the Economic Performance report, the index shows that within the past 10 years, Arizona has been outperformed by only two other state economies. The performance index is based broadly on a state’s performance within state gross domestic product, absolute domestic migration and non-farm payroll employment. Arizona has seen an Absolute Domestic Migration of a whopping 633K, the third highest number in the country. The Economic Outlook tells another story about Arizona’s economy. The ranking is based on a state’s current standing in 15 state policy variables. Each of these factors, ranging from sales tax burden to state minimum wage, is influenced directly by state lawmakers through the legislative process. In this ranking, Arizona appears at No. 3, with a Top Marginal Personal Income Tax Rate of 2.5% and a Top Marginal Corporate Income Tax Rate of 4.9%. The report indicates that, generally speaking, states that spend and tax less experience higher growth rates than states that spend and tax more. While this is an important finding for entrepreneurs looking to start their own businesses, it shouldn’t discourage them from investing in their dream franchises if they’re in a market with a slower growth rate. Franchise Growth Plans So what should franchisors do with this information? When it comes to deciding where franchisors should develop their brand, it’s always important to look at the complete picture of what the region has to offer. Though most franchisors take a shotgun approach — meaning wherever a prospect franchisee inquires, the franchisor will typically entertain that marketplace — the strategy of looking at these overall policies can help them scale their business at a more efficient rate. With that said, findings within the report should not be the deciding measure for franchisors, but they should play a role in the decision. Pollo Campero* Current units in state: 0 Growth capacity in state: 20 Total jobs created at max growth capacity: 100 Total unit count: 350 Investment range: $1,287,250 to $2,491,500 Pollo Campero has identified Arizona as a prime market for franchise expansion because the area is growing both demographically and economically. Plus, 30% of people in the state report Hispanic or Latino origin, and the largest individual ancestry group is Mexican (25.8%) — a diverse customer base that is ideal for Pollo Campero, which is a major favorite among international customers as the world’s largest Central American chicken franchise. “Arizona is a wonderful market and is one of the fastest-growing states in the U.S.,” said Pollo Campero, director of franchise development Blas Escarcega. “People are migrating there from all over the world because it is also a very business-friendly state. We believe there is a potential to tap into the market, because the demand for various types of international cuisine will likely develop as more people immigrate from other countries.” Paris Baguette* Current units in state: 2 Growth capacity in state: 10+ Total jobs created at max growth capacity: 75 Total unit count: 4,000 worldwide, 150 in the United States Investment range: $652,565 to $1,750,900 While this bakery cafe franchise has locations all over the world, the development team currently has its sights set on the Grand Canyon State (among others in the U.S.), and in Scottsdale in particular. “We looked at several major markets throughout the U.S. for our expansion, and Phoenix was one of the top-20 markets in our opinion for a rollout of the brand,” said Paris Baguette Chief Development Officer Mark Mele. “When we looked at a rollout for the major cities in the U.S., it was kind of a no-brainer for us.” USA Insulation Current units in state: 0 Growth capacity in state: 5+ Total jobs created at max growth capacity: 25+ Total unit count: 100+ Investment range: $269,500 to $398,000 With an overall push out west, this 80-plus-unit insulation franchise under the Threshold Brands umbrella is ready to bring quality insulation to the city’s rising populations as temperatures rise alongside it. “Phoenix is a great next step for USA Insulation,” said Patrick Pitrone, brand president. “We want to grow thoughtfully with the right people, in the right marketplaces.” Pet Wants Current units in state: 1 Growth capacity in state: 40 Total jobs created at max growth capacity: 200+ Total unit count: 150 Investment range: $131,350 to $202,500 The fresh pet food franchise Pet Wants has identified several states across the country that are primed for growth due to a large population of pet owners. “All of our target states are in the top half of states with favorable conditions for strong franchise growth and success,” said DeNita Carani, brand president. “In many cases, year-round favorable weather also plays a strong part in our target markets, allowing our franchise owners to organically connect with their customer base in community events.” Franchise Brands Headquartered in Arizona: ActiveRx AmCheck Amazing Lash Studio America’s Taco Shop Bounce U Circle K / TMC Franchise Corporation Cold Stone Creamery, Inc. D’lish DataPreserve Data Doctors Dogtopia Doo Care Extreme Pita Fuchsia Spa Group Frullati Cafe & Bakery Game Xchange Grabbagreen The Great Steak & Potato Company Grout Doctor HomeSmart Real Estate Honest-1 Auto Care HYPOXI Johnnie’s Pizza Kahala Brands Ling & Louie’s Asian Bar Little Gym International, Inc., The Lo-Lo’s Chicken & Waffles Massage Envy My Pie Pizza National Youth Sports Franchising Native Grill & Wings Native New Yorker Nrgize Lifestyle OpenWorks Peter Piper Pizza PremierGarage Primp and Blow Pump It Up Radiance Medspa Rapid Recovery Ranch 1 Realty Executives International Re-Bath RedLine Athletics Rhea Lana’s Rise Above Debt Relief Rollerz Samurai Sam’s Teriyaki Grill Shake’s Frozen Custard, Inc Sirius Day Spa Slim Chickens Spa810 SupperShuttle Surf City Squeeze Synergy Homecare The inside Coup The Joint Tacos 4 Life TacoTime International, Inc. Tax Centers of America Thai Express Tilted Kilt Valley Goldmine V’s Barbershop Wafflo Zoyo Neighborhood Yogurt Zounds