Franchising: Why it’s a sector of prosperity
With over 900 active UK franchises now, Andrew Taylor, head of leisure, retail and franchise at NatWest comments on the growing industry's latest trends
Franchising is a significant business in the UK with over 900 franchise brands operating including some of the most well know names on the high street, such as McDonald’s, Dominos, Costa and many more.
In fact over 44,000 operations on the high street are franchises, often unbeknown to the consuming public. Franchising offers a truly compelling alternative to start-up operations with global and national brands, tried and tested operating systems and processes, and huge marketing support. It is no wonder we have seen a steady growth in entrepreneurs investing in franchises.
The total number of people employed in the franchising industry is higher than ever according to the latest bfa/NatWest Franchise Survey – with the results revealing a 70% growth in franchise-employees over the past 10 years. In that same period, the sector’s contribution to the economy has also grown by 46% – bringing in around £15.1bn last year.
However, there have inevitably been some changes in the way the market operates.
One of the most notable is that we are seeing fewer franchisees – and more units. Nearly 30% of franchisees now run multiple units, resulting in a fall in the number of franchisees by around 15%.
And we expect multiple unit ownership to continue as one in five franchisees expects to increase their operation over the course of the next 12 months.
So we have fewer people running larger chunks of the industry.
Another trend that we have noticed across our dedicated franchise teams is the growing number of multi-brand operators, some operating two or three different brands in a portfolio of franchised businesses.
Where some of the larger franchises are gradually becoming dominated by fewer franchisees owning multiple units, some smaller operators are looking outside of that brand for expansion.
A show of strength
Another area of change is the size of franchised businesses, which are on average becoming larger with a higher turnover and more staff.
This year’s survey showed over half claim a turnover in excess of £250,000, with a third now employing 10 or more staff.
This is in part due to the rise in the number of units in the hotel and catering sector who tend, on average, to employ more people.
Health and fitness franchises have also been growing in popularity, with more people looking to get active. These brands tend to have been established overseas and are now bringing their brands to the UK.
Anytime Fitness is one that has seen fast growth in the past three to four years, growing from conception to around 60 units with around 200 franchises awarded and awaiting a suitable location.
It’s also great to see an increase in the number of franchise systems that are UK owned and run. Going back 20 years, a large proportion of franchised systems were imported from the US.
Today, results show four in five are UK based. The proportion of UK based systems continues to creep upwards year on year – and we expect to see that trend continue as the industry matures in this country.
Exporting also seems to be on the rise, with one in four franchisors operating outside of the UK and one in nine (11%) saying they would consider doing so in the future.
On the flip side, the transport and vehicle services and business and commercial services sectors have seen little growth in the last 10 years, accounting for just over 17% of all units in our latest survey, compared to a quarter in 2005.
Store retailing franchises are finding it tougher to stay profitable than in other sectors. Only a third say they are ‘quite’ or ‘highly’ profitable compared with 57% for both hotel and catering and personal services franchises.
This tallies with government figures on retail sales (ONS), which calculated that average store prices fell by 2.9% in June 2015 compared with June 2014 – the 12th consecutive month of year-on-year price falls with all store types reporting decreases.
A bright future
Despite this, overall the sector remains strong, with the largest franchise businesses putting in some of the best performances.
Relations between franchisees and franchisors also seem better than ever, with nine out of 10 saying they are definitely or mainly satisfied with their relationship.
Overall, the bfa/NatWest Franchise Survey paints a picture of a sector in good health, with great potential and ambition.
And our dedicated franchise teams, based across the UK, remain committed to supporting the industry in the best possible way.
NatWest started supporting franchise businesses in the UK when The Empire Strikes Back was premiering in cinemas and we have been a consistent supporter ever since, working with over 4,000 businesses across Britain.