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Why do certain sectors favour franchising?

Written by Josh Russell on Thursday, 05 May 2016. Posted in Analysis

Whilst franchising is a very flexible model, there’s no hiding from the fact that it has achieved particular success in specific sectors. So what’s driving success in these industries?

Why do certain sectors favour franchising?

Browse through a franchise catalogue and it’s likely you’ll quickly notice that specific trends emerge. Whether it’s coffee or cleaning, certain sectors have proven to be incredibly fertile ground for franchising. But why is it that some industries are more suited to franchising than others?

When thinking about trends in franchising, many people’s minds go straight to the classics. “People tend to think about the high-visibility stuff like retail and food,” says Bill Pegram, director at The Franchising Centre, the franchise consultancy. “But they’re always surprised to learn what a wide range of businesses can actually be franchised.” Far from being the sole preserve of high-street brands like Clarks and McDonald’s, franchising has also flourished in sectors such as fitness, lettings and childcare. The sheer versatility of the model means that franchising can be translated to a wide variety of sectors. “We speak to people every week who had never realised their business could be franchised,” adds Pegram. 

So what is behind the explosion of franchises in certain verticals? “Franchises have often hit the market at a time there’s a massive growth potential,” says Richard Holden, head of franchising at Lloyds Banking Group. One example he gives is that of domiciliary care. With an ageing population and a government keen to reduce the burden on the NHS, franchises providing home-based care were in the perfect position to capitalise on booming demand. Viewed through this lens, the emergence of large-scale national success stories was perhaps inevitable. “The trends in what’s popular in franchising mirrors what’s happening in the general economic climate,” Holden explains.

And this isn’t the only thing driving the rapid proliferation of franchise outlets in certain sectors. “Things are so fast-moving these days that a lot of new businesses are aware of the fact that they’ll soon have competition,” says Pegram. “Everybody is interested in the land grab now.” In much the same way that startups like Facebook or Twitter focused on securing market share in the early years, businesses in many emerging sectors have become aware that they are engaged in an arms race with the competition. “They need to get rolled out across the country quickly and become the market leader before their competition catches on,” he says. “The quickest, most cost-effective way to do that is through franchising.”

That’s not to say every sector lends itself to this kind of rapid expansion though. “There are certain models that may not have the ability to grow as quickly,” says Emily Price, operations manager at the bfa. “Where you’re dependent on finding a very specific skill set in a franchisee, that may hinder growth.” When working in highly technical disciplines, reducing all the core competencies required to a simple, replicable model may not be realistic. In light of this, disciplines like engineering or dentistry are never likely to be major franchising trends. “Purely because you are dependent on finding a very niche person to service each territory, you might not find that you can expand fast enough in that particular sector,” she adds.

Another thing to watch out for is trying to piggyback on the latest craze. “Franchising is not very good for fad industries that are here today and gone tomorrow,” Holden says. An example he gives is the vogue for fish pedicures a few years ago. Whilst the huge explosion in demand meant that it was really tempting for franchises to get involved in the sector, this enthusiasm was short-lived. It transpired that there was a risk that the fish could help to spread certain bacterial infections and the outlets rapidly dropped out of popularity. “The businesses didn’t last very long,” he says. “So obviously that didn’t give the franchisee very long to be able to get a return on their initial investment.”

The only other sectors that don’t tend to lend themselves to franchising are those with razor-thin margins. “With a franchise, you’ve got two people in the pot,” says Holden. “There has to be enough profit for both the franchisee and the franchisor to make money.” Whilst sole traders can easily thrive on smaller profits, these industries are unlikely to support a wealth of thriving franchises. The one exception to this is sectors where franchisees have lower margins but have a very high turnover to compensate. “In those circumstances, you have enough profit because you’ve got ample sales,” he says.

Either way, it’s hard to deny that certain sectors have proven particularly popular. But one still has to ask if this might be something of a double-edged sword. “It’s great for the franchise sector because it means that the businesses are doing well,” Price says. “It gives us an opportunity to highlight the success stories within the industry.” Unfortunately, whilst these success stories are good news for franchising as a whole, they can also encourage imitators. “You get the ad hoc brands that decide they’d like to hop on the bandwagon,” she says. “They try and get in there because they see that there are other companies doing well.”

Thankfully, savvy consumers will typically spot copycats for what they are. “You tend to find that the cream rises to the top,” says Holden. “The ones that succeed are those that have a competitive advantage or unique selling point.” By way of example, he points to care brands Home Instead Senior Care and Bluebird Care; whilst they weren’t necessarily the first through the door, they have endured purely because they have created an offering that truly stands out from the crowd. “There are businesses that launched before them but they are the ones that have actually developed the best through franchising,” he says.

However, outside of these well-established sectors, should the UK be doing more to spread the word about franchising? “We tell businesses about franchising and they say they hadn’t even thought of it,” Pegram says. Often businesses only become aware that franchising is a viable option in their sector when they begin to see franchised brands crop up. Pegram believes the franchise sector should be doing more to reach these businesses before this happens. “It would be nice if we could get that message out there so a business learns about franchising before seeing it work for their competition,” he says. “We need to raise awareness and provide education about what franchising has to offer.” 

About the Author

Josh Russell

Josh Russell

When he isn’t tooling around on trains in a tux like the Daniel Craig of the Greater Anglia transport system, Russell spends his time living the glamourous life of an enterprise journalist, judging Digital Business of the Year at the National Business Awards and attending conferences like NixonMcInnes’ Meaning 2013. However, like all good secret agents, Russell lives a double life – in his case, as a closet revolutionary. Social enterprise, sustainable business and collaborative practices are his true passions, something that he has had plenty of opportunity to air in his features here at Elite Franchise.

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