Franchising: an economic force to be reckoned with

Most industries have struggled over the last decade but franchising has seen record growth. What makes it such a powerful economic force?

Franchising: an economic force to be reckoned with

While our cousins Stateside have always worn their hearts on their sleeves when it comes to franchising, it has taken us Brits a little longer to get a handle on quite how much potential the model has. But it’s certainly better late than never. Granted, we’ve always had a healthy franchise sector in the UK but”the last decade has seen an explosion of franchised firms allowing people to buy into a tried and tested business model.

The recession has had a huge impact in stimulating the franchising sector. With so many individuals finding themselves out of work and often flushed with redundancy money in the years after the financial crisis, there has been no shortage of people looking to buy and build their own business. Indeed, the 2013 NatWest British Franchise Association (bfa) Franchise Survey revealed that, while the economy has shrunk 2.5% over the last five years, the franchising sector’s contribution to GDP has leapt by 20%.

Given the survey also demonstrated that franchising is currently contributing £13.9bn to the economy, franchising is clearly offering fertile growth even during the most barren circumstances. But what is it that makes it such an indomitable contributor to the UK’s GDP?

“Franchises are based on a proven business model,””
Suzie McCafferty,”managing director, Platinum Wave

Walk along any high street and the chances are that many of the retail and fast-food outlets that are trading successfully are franchisee-owned but the contribution of franchising to the UK economy is often underestimated. There are currently over 500 franchise brands employing just under 600,000 people in the UK and, according to the bfa, 92% of franchise units are profitable. Why is it that while many businesses are failing the franchise sector continues to thrive?

The key reason franchise-owned businesses are more resilient in a recession is that they are based on a proven business model with many years of successful trading behind them. Franchisors need to firstly prove that their business model is profitable and has long-term sustainability before they franchise to others, and will have spent years investing in and developing their operational and marketing systems. This is a crucial factor which enables franchise businesses to remain focused on the market and continue to experience positive trading even in challenging economic conditions.”

Another factor is that franchisors go to great lengths to only recruit franchisees who they believe will make a success of the business. The recruitment and selection process of franchisees tends to be fairly rigorous to filter out those candidates who may not have the qualities needed to succeed. All of these factors contribute to the success of franchising within the UK economy.

“A better deal for all,“Steve Tarbard,
franchise development consultant,The Franchising Centre

With franchised businesses contributing so much to GDP, it’s hardly surprising that the most recent recession has seen franchised businesses go from strength to strength. But why is this? Mainly because a franchise offers a win-win situation for both franchisor and franchisee.

The franchisees are building upon a capital asset, something they own, adding value to both their own individual businesses and also the franchisor’s. A key benefit is that they are buying into a proven business model, something they can see in operation before they invest and that’s statistically less likely to fail than a start-up. As with any business, owning and running a franchise still requires hard work and success is never guaranteed but at the very least a franchisee is putting the likelihood of success in their favour, which is a major plus point in any economic environment.”

Meanwhile, businesses suited to expansion through franchising can grow quickly, without using up their own cash reserves or borrowing too much from financial institutions. Franchisors benefit from having motivated individuals with the drive to grow and build their businesses. This generates a powerful business bond, which goes some way to explaining why franchising is such an important economic force in the UK today.

Josh Russell
Josh Russell