Evaluating business development opportunities in urban markets: has your franchise system researched buying powers lately of racial and ethnic minorities?Much has been written about the shifts in demographics that the United States has witnessed over the past decade and what is on the horizon from a racial and ethnic standpoint. But let's also consider the shifts in people moving into the city from the suburbs and use that information to drive change in thinking.
Moving or expanding one's business into urban markets requires thoughtful preparation to obtain an accurate assessment of a neighborhood's strengths and weaknesses, as well as the opportunities and challenges. The urban market is clearly underserved and untapped. Urban residents often spend their time and money traveling to access goods and services that are not found in their neighborhoods. Recent research by the Selig Center for Economic Growth of the Univ. of Georgia has shown that the costs of the basics--food, clothing and even insurance--are often higher in urban areas.
If your company's priority is to grow, then it should look past old assumptions and preconceptions about "inner cities" and grow the brand in urban markets. If the company doesn't find a way to serve residents traveling out of the city for service, competitors will. Use the strength of the franchise brand to fill the void.
While most companies depend heavily on census data to make their decision on where to place their businesses, it is not a magic potion and that data may not reveal obscure markets in urban communities. Companies may also want to incorporate "DrillDown" data to get a clearer picture. Developed by Social Compact, which is a non-profit organization that encourages businesses to invest in under-served communities, DrillDown is real-time market analysis. The data is a more precise measure of households, household size, income, local residential investment and daytime populations. This information is calibrated to measure the changing, diverse and often informal spectrum on economies in urban markets. The profiles have consistently found inner-city communities to be larger, safer and to possess far greater buying power than indicated by standard-market information sources.
Another resource that is available to assist franchise systems in making informed decisions regarding expansion into urban markets is Local Initiatives Support Corporation's "MetroEdge." ShoreBank, a community development and environmental bank-holding company, initially launched MetroEdge in 1998 on the assumption that mainstream businesses were seriously underestimating the consumer, asset and market potential of inner-city neighborhoods. In 2005, ShoreBank joined forces with the LISC to form LISC MetroEdge to better position itself to fuel retail and commercial development in urban markets.
According to a report by the Brookings Institute, "Measuring the Informal Economy-One Neighborhood at a Time," there is a serious misunderstanding of the urban market and many lack knowledge of the informal economy. Franchise systems that comprehend that informal economies run on cash transactions, which ultimately leads to an undercount to the areas buying power, will have a leg up on their competition.
Buying Power: The Name of the Game
According to data from the Selig Center for Economic Growth, the buying power for racial and ethnic minorities is projected to wield formidable economic clout. Selig's estimate and projections are for 1990-2008 with projections from 2009-2013. Understanding this report was published before the economic downturn, in 2007, both the African American market ($913 billion) and the Hispanic market ($951 billion) were larger than the entire economies of all but 13 countries in the world. Buying power is not a measure of wealth. It is the total personal income of residents that is available, after taxes, for spending on virtually everything that they buy. It does not include dollars that are borrowed or that were saved in the previous years.
Has your franchise system researched buying powers lately of racial and ethnic minorities? Will your system be attractive to untapped markets as these groups grow larger and larger?
African American Buying Power
In 2008, African Americans constituted the largest racial minority market in the United States, according to the Selig Center. It is expected that African American buying power will rise 8.8 percent in 2013, accounting for almost nine cents out of every dollar spent. The U.S. Census Bureau's Survey of Business Owners report released in 2006 showed that black-owned businesses increased by 45 percent from 1997-2002, which translated into four and one-half times faster than the 10 percent increase in the number of all U.S. businesses.
Due to the differences in per capita income, wealth, demographics and culture, the spending habits of African Americans as a group are not the same as those of non-black consumers. Researchers contend that as African Americans' buying power expands, business-to-consumer firms can be expected to devote more resources toward developing and marketing products that meet the needs and match preferences of African Americans. According the Selig Center, African Americans spent more than non-blacks on natural gas, electricity, telephone services, children's clothing and footwear. Blacks and non-blacks spent about the same proportion of their money for housekeeping supplies, furniture, floor coverings, appliances, men's and boy's clothing, transportation, and life and other personal insurance.
Native American Buying Power
According to the Selig Center, Native American's buying power rose to roughly $61.8 billion in 2008 and is projected to reach $84.6 billion in 2013. The 2002 SBO showed that the number of American Indian-owned business increased by 67 percent from 1997-2002 whereas the number of all U.S. businesses increased by 10 percent.
Native Americans, as of 2008, controlled $61.8 billion in disposable income, although they comprise one percent of the country population.
Asian Buying Power
Projected to quintuple, Asian buying power climbed from $116 billion in 1990 to $269 billion in 2000, to $509 billion in 2008, and is expected to reach $752 billion in 2013. The group's fast paced growth in buying power demonstrated the importance of Asian consumers and creates opportunities for growth in franchising.
Asians spend their money in the following areas: food, housing, major appliances, telecommunications services, education, furniture, personal insurance and floor coverings.
Hispanic Buying Power
The 2006 American Community Survey showed that one out of every seven who lives in the United States is of Hispanic origin and that number continues to grow more rapidly than the non-Hispanic population. In 2008, Hispanics accounted for $951 billion in spending power. Hispanics can be of any race and therefore it is considered an ethnic category not a racial group.
Hispanics spend more on groceries, telephone services, clothing, footwear, gasoline and motor oil. Hispanics also spent a higher proportion of their money on housing and vehicle purchases. It should also be noted that Hispanics spent about the same proportion of their total outlays as non-Hispanics on restaurants, housekeeping supplies, furniture, appliances, household textiles, public transportation and personal care products and services.
Though the above is based on studies conducted by the Selig Center for Economic Growth, it should be used as a reference or a guide to franchises in outreach to diverse groups to grow their franchise brands. The franchising community should be careful not to pigeon hole an ethnic or racial group.
The Diversity Institute, similar to IFA, will look at trends, reports and the state of franchising to develop its strategic plan for the next three years in the next couple of months. As franchises begin their strategic plans for the next three, five or 10 years, they should ask themselves "Do I feel lucky today or should I expand my plans for the next wave?"
Advancing Franchising in Urban Markets
The International Franchise Association's MinorityFan program helps its members to reach women and minority franchise prospects through its one-day seminars. View a list of upcoming seminars at www.franchise.org by selecting "About IFA," "Programs and Services" and "MinorityFran." Read what one participating legislator has to say about the program.
Miriam L. Brewer is director of education and diversity for the International Franchise Association. She can be reached at 202-662-0784 or firstname.lastname@example.org.