Even the most casual observer of modern day America is sure to be aware that franchising plays a significant role in the day-to-day business life of the United States. Fast food chains such as McDonald's and Burger King are perhaps the most widely recognized icons of franchising, but that's just the tip of the iceberg.

An exhaustive study measuring the economic impact of franchised businesses in the U.S. has just been released, and it paints a picture of a business sector that can rightly be described as huge in terms of the contribution it makes to the nation's gross domestic product (GDP) and the millions of jobs it creates.

The study, which was conducted for the International Franchise Association Educational Foundation (IFAEF) by Pricewaterhouse-Coopers, found that more than 760,000 franchised businesses generate a total economic output of more than $1.53 trillion, or nearly 10% of the private sector economy in the U.S.

Franchised businesses generate jobs for some 18 million Americans, more than half of whom are directly employed by franchises in a variety of industries, including food service, real estate, construction and remodeling, commercial and residential cleaning, business-to-business services and many, many more.

The study is significant for a number of reasons. It is the largest, most comprehensive research project ever undertaken by the IFAEF, and it is the first serious attempt to measure the economic impact of the franchisees, franchisors, employees and suppliers that collectively make up the franchising sector in the U.S. economy.

"This research project began with a simple idea-to do a study that would measure the economic activity of franchise businesses in the United States," said IFAEF chairman Dick Rennick, who is also chief executive officer of American Leak Detection Inc.

"The main purpose of this study is to educate people about franchising and the way franchise businesses contribute to the American economy," he said. "You will find these businesses at corner intersections, in shopping malls, in office buildings and in every community in this country."

Franchising itself has become one of the most widely used methods for the distribution and marketing of products and services both in the U.S. and abroad over the last 30 years, but there has been very little broad-scale economic research done on it.

As the study points out, no government agencies currently collect comprehensive data on franchise businesses. It has been more than 15 years since the U.S. Department of Commerce discontinued publication of the annual reports on franchising that it used to compile and release.

Another aspect of this study that makes it unique and adds to its value as an accurate window onto the true significance of franchising's role in the U.S. is the nature of its focus.

After the Commerce Department stopped compiling Franchising in the Economy, the IFA stepped into the void and put out a version of the report for another three years. However, both the Commerce Department and the IFA reports were based primarily on annual surveys of franchisors.

From 1996 to 1998, the IFA published the Profile of Franchising series, which was based on a collection and analysis of data from Uniform Franchise Offering Circulars (UFOCs) filed and registered in one of the 12 states that require franchisors to register their documents prior to the sale of a franchise.

Those earlier reports provided much useful information about the size and scope of franchise business activity in the U.S. Indeed, the Franchising in the Economy reports were the only source of statistical information about franchise businesses in the U.S. at the time they were published, and they were widely referenced. However, none of them attempted to measure economic activity, which this study does.

One of the notable findings of The Economic Impact of Franchised Businesses in the United States, as the report is officially known, is that because franchised businesses generate a significant amount of economic activity, they stimulate still more economic activity in non-franchised businesses.

The study determined that franchised businesses operated more than 767,400 U.S. establishments in 2001, counting both franchisee-owned and company-owned outlets. They provided some 9.8 million jobs, generated a $229.1 billion payroll and produced $624.6 billion in revenues.

That translates to 7.4% of all private sector jobs, 5% of all private sector payrolls and almost 4% of all private sector output for the year. "To indicate economic size in a different way, franchised businesses employed about the same number of people in 2001 as did all manufacturers of durable goods, such as computers, cars, trucks, planes, communications equipment, primary metals, wood products and instruments," the report states.

Franchising's impact on the economy is even greater than those numbers reflect when the purchases made by the owners of franchised businesses and their employees from non-franchised businesses are factored into the picture.

According to the study, "the total impact of franchising was to create 18,121,595 jobs (13.7% of all private sector jobs) and $506.6 billion of payroll (11.1% of all private- sector payroll) in 2001. In very round terms, economic activity in franchised businesses generated about the same amount of additional activity in non-franchised businesses."

There are two basic types of franchising, business format and product distribution. Product distribution franchises sell the franchisor's products and are supplier-dealer relationships. Business format franchises also sell the franchisor's product or service, with the franchisor's trademark, but they also operate according to a system provide by the franchisor.

Business format franchising is more widespread than product distribution franchising. It accounted for about 4.3 times as many establishments and four times as many jobs as product distribution franchising in 2001, the study reveals.

"Franchisees owned most (76%) of the establishments that operated under a business format franchise," the report states. "Judged by the ratio of franchised establishments to all establishments in a line of business, franchising was the most significant contributor in Quick Service Restaurants (56.3%), Lodging (18.2%), Retail Food (14.2%) and Table/Full Service Restaurants (31.1%). The same four lines were also at the top when comparing the ratio of jobs (or payroll) in franchised businesses to jobs (or payroll) in all companies operating in a line of business."

Product distribution franchising dominated the Automotive and Truck Dealers line of business, accounting for almost 32% of all business establishments and more than 88% of all jobs and payroll in the line. It was also the major business model for Gasoline Service Stations, in which product distribution franchising accounted for more than half of establishments, jobs and payroll, the study determined.

Product distribution franchising is also very important to Beverage Bottling, more so than can be shown in the study's data reports. "The reason is that federal economic statistics are not available for that line of business alone," the report explains. "Consequently, activity levels in franchised establishments that bottle beverages must be compared with levels in a considerably larger industry that includes the bottling of beverages."

Franchised businesses operate not just in every state in the U.S., but in every single Congressional District as well. The states benefiting the most from franchising's impact in the areas of jobs and payrolls were California, Texas, Florida and Illinois in 2001.

Relative to the size of the statewide economy, franchising had the greatest impact on jobs and payrolls in Nevada, Arizona, New Mexico, Florida and Mississippi in 2001, according to the study.

It seems likely that franchising's impact on the U.S. economy has continued to grow since 2001 and probably even accelerated. In the area of jobs, for example, franchised businesses probably provide more jobs than durable goods manufacturers at present.