2014 Franchise Industry Economic Steve Caldeira, CFE President and CEO International Franchise Association March 18, & Public Policy Forecast

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1 2014 Franchise Industry Economic Steve Caldeira, CFE President and CEO International Franchise Association March 18, 2014 & Public Policy Forecast

2 $38 Billion in New Economic Output 4.7% Growth Nearly 13,000 New Establishments 1.7% Growth Nearly 200,000 New Jobs 2.3 % Growth

3 2014 vs Franchise Growth Is Expected To Increase In 2014, But Remains Below Potential Franchise Growth Rates For Output, Establishments, And Jobs In 2014, output and establishment growth is expected to increase, while employment growth remains steady P er c ent ( %) Source: IHS Global Insight 193,000 new jobs 13,000 new business establishments $38 billion more in economic output However, while growth is improving, it is still below prerecession trends What do these numbers mean?

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7 2014 Optimism Franchisors Expect The Economy And Business Prospects To Improve In 2014 View Of 2014 Economy Compared To 2013 Business Prospects Outside of their view of the economy, franchisors also see improved business prospects ( %) 30 P er c e nt percent expect business to be better in percent expect an increase in sales compared to 78 percent a year ago 56 percent plan to hire in 2014 compared to 48 percent a year ago Source: Franchise Business Leader 7

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9 2014 Optimism However, Franchisees' Economic And Business Outlook For 2014 Is Worse Than It Was For 2013 View Of 2014 Economy Compared To Business Prospects P er c e nt ( %) Franchisees also have diminished business prospects in 2014, one reason is the ACA. Only 31 percent expect business to be better in 2014 More than 50 percent plan to hire in 2014 However, unlike franchisors, 54 percent plan to reduce full-time staff due to the ACA Source: Franchise Business Leader 9

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11 Primary Goal Protect franchise business model

12 Top Tier Issues: ACA relief Workforce regulations SBA Lending Second Tier Issues Tax Reform Immigration Veterans in franchising Cybersecurity

13 Health Care Health Care Focus on Affordable Care Act implementation Seeking legislative and changes to reduce impact on IFA members Increase definition of full-time employees from 30 hours/week to 40 hours/week. Threshold of 50 Full-time Equivalent (FTE) employees to 50 Full-time Employees. Taxes on health insurers are passed on to consumers in the form of higher premiums.

14 Health Care Health Care Implementation webinars for IFA members IFA Health Care Web site launched to assist members in understanding the impact of ACA

15 Tax Reform Taxes Getting closer to comprehensive tax reform Significant progress has been made towards comprehensive tax reform legislation. Draft language has been circulated in the Senate, and we expect a House bill to be introduced in the first half of Reform must address both corporate and individual rates, and lower overall tax rates, possibly at the expense of some business deductions. Comprehensive tax reform most likely dead for Several reasons Unpopularity of Obamacare. The majority of Americans and GOP will continue to exploit this weakness through the 2014 election cycle.

16 Labor Regulations Recent victory NLRB declined to appeal decision that invalidated employee rights poster requirement. U.S. Supreme Court recently heard case regarding Obama recess appointments. Decision expected this spring. Nominee for Wage & Hour Division Administrator poses significant threat to franchising

17 State Government Relations & Public Policy Preventing damaging franchise relationship legislation that would regulate transfers, approved suppliers, renewals and other items normally negotiated in franchise agreements Ø Ø Maine LD 1458 Similar legislation in Michigan, Massachusetts, Maine, New Hampshire, Puerto Rico and California

18 State Government Relations & Public Policy Clarifying independent contractor status of franchisees Ø Ø Massachusetts, Oregon, New Jersey, Connecticut, Washington, Minnesota, Rhode Island Proactive engagement reduces frivolous litigation and undercuts future franchise relationship bill efforts

19 IFA s Political Action Committee Achieved historic growth over last several years Over $1.2 million last election cycle Supports pro-franchise Members of Congress and candidates Helps ensure the legislative and regulatory success of industry

20 FranPAC Update

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22 Media & Public Relations Earned media outreach to support advocacy efforts on state issues, comprehensive tax reform; health care, and immigration reform; and Fast Food (union-sponsored) Walkouts ADP jobs report, FBI, Economic Outlook, IFA/US Chamber joint commissioned research on ACA and minimum wage and other policy related - research is supporting our efforts to educate policy makers and the public about the importance of franchising to the economy Utilizing research to promote franchising (FRANdata partnership) Credit access report (April) Emerging franchise concept report (TBD) Average total investment report (June)

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24 Franchise Relations Best Practices Process andtask steps: Force The two Working Groups developed a list of questions, perceived issues and potential solutions/action steps The Groups identified areas with greatest agreement, some agreement and no agreement. Working within these parameters, IFA identified new policies and programs to supplement association programs to address some of the potential issues

25 Franchise Relations Best Practices Task Force In September 2013, IFA adopted the recommendations from the task force to strengthen Franchise Relations which include: Better Education of Prospective Franchisees Improve Franchise Disclosure - new online course focused on disclosure and key terms in agreements

26 Franchise Relations Best Practices Task Force Communications staff and volunteers working to ensure IFA is the collective voice of franchisees and franchisors Research using focus groups and public opinion research to understand views and concern about Franchise Relations issues Clarifying Terms in Franchise Agreements adopted a Statement of Guiding Principles to provide more clarity and transparency creating a summary of franchise offering information for the IFA web site for member companies New VP, Franchisee Engagement & Industry Relations will report to President & CEO

27 VetFran Update 620 VetFran member companies 151,557 veterans, military spouses and wounded warriors have started careers in franchising, including 5,192 new veteran franchise business owners, since 2011 Partnerships: White House Joining Forces Initiative U.S. Chamber of Commerce/Chamber Foundation Hiring Our Heroes U.S. Department of Veterans Affairs The Small Business Administration

28 VetFran: Upcoming Chairman s Corps ($15K) and Sponsorships to sustain VetFran Capital One Award for Small Business Veteran and Military Spouse Employment at awards dinner hosted by the Chamber s Foundation Hiring Our Heroes. One-year progress report released Veterans Day, 2013 VetFran sessions at Franchise EXPO s, convention, and with VetFran member companies.

29 IFA Convention February 22-25, 2014 More than 3,500 attended (largest nonvegas)

30 International 90 percent of members believe international growth is important to their future 79 percent operate internationally Trade missions in 2013 to: a. b. c. Middle East UAE, Egypt, Jordan, Qatar Africa South Africa, Kenya, Nigeria China Beijing, Chongqing, Nanjing, Dalian Trade missions in 2014 to: a. b. c. Southeast Asia Thailand, Malaysia, Philippines India Mexico

31 Discussion