To assess the state of US franchise systems, we leverage franchise disclosure documents and other industry data sources to look at quantitative and qualitative factors including unit economics, franchisee to franchisee valuation metrics, interest in growth from franchisees, development incentives, category dynamics, investment costs and US franchise closures. Our focus is on US franchise brands, noting company-owned brands have more control over unit growth outlooks.
Unit economics peaked in 2021 across many brands following strong sales growth and modest commodity & wage inflation in the first half of the year, as well as what we perceive as "skeleton crews," that likely enabled some "over earning," on the labor line.
We recognize parts of our assessment do not capture the challenges posed in 2022, though still should provide important takeaways in understanding the state of franchise systems, with easing costs and further pricing to support a reacceleration in unit economics. We view strong/improving unit economics, high/increasing valuation multiples and favorable category dynamics as positives for future growth prospects.
Holiday trading across most of our coverage has been strong, given the non-discretionary nature of the first uninterrupted holiday since 2019. We expect this to have been funded by a sharp rise in unsecured credit in December 2022.
Second-generation biofuels are the poster-child products of the circular economy. Biorefineries offer efficient utilization of biomass, represent a low-carbon transportation fuel solution by reducing greenhouse gas (GHG) footprint by up to 90% versus fossil fuels, and help tackle the challenge of reducing our dependence on fossil fuels.
New-economy companies' focus on profitability added to top-line growth pressure in 2022 besides offline economy reopening. We remain positive on the ASEAN-6 e-commerce growth potential, as market penetration remains low at 12% (as of 2022E).