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The Renewed Strength of the Franchise

As the economy grows at its slowest pace since 2009 and the Bank of England governor points to income stagnation and weaker household spending, it may seem like a tricky time to set up a business. There are always those entrepreneurs, however, who will not allow their spirits to be dimmed by uncertain economic conjecture, and a long-standing business model may be the way to go for them – namely, the franchise.

According to the most recent survey by the British Franchise Association in collaboration with NatWest, franchises are contributing more than £15 billion to GDP, up 46% from 2005 and 10% since 2013. The segment now employs some six hundred thousand people, half of whom enjoy a permanent contract. A full half of those polled claim revenues of £250,000 or more, and success rates are rather high, with only 4.6% of new ventures failing within the first year – significantly less than the average figure for SMEs, according to the BFA.

Franchising as a safe haven

The numbers are encouraging, but there is another reason for the healthy take-up. Tracking consumer taste is a hectic undertaking as preferences are shaped at the speed of light by pervasive media messaging. Relying on a well-known brand with an established structure can feel like a safe haven for entrepreneurs when compared with the do-it-yourself option. Moreover, franchises enjoy the economies of scale of bigger organisations and a free ride on marketing campaigns and market research.

An evolving industry

Opportunities abound not only in the business-to-consumer realm but also in business-to-business. Industry experts point to the most promising sectors, alongside the evergreen food and beverages space, as green energy, home and child care, and health and fitness.

To match increasing demand, traditional franchisors are evolving into more complex business structures. ‘The growth of super franchisors has already started’ according to UK industry magazine What Franchise, as companies comb mature franchise networks to create a stable of brands. The option to join a super franchisor could be very attractive for independent owners seeking to scale up.

The benefits of diversification

Rather than running multiple outlets under the same brand, many serial franchisees now find it more attractive to include more than one brand in their roster. Diversification serves to protect business owners from shifts in the fortune of their brand of choice. But oversight of disparate businesses calls for special vigilance. Writing for the latest issue of FranchiseWorld, BFA board member Carl Reader advises to ‘Prioritise making sure that your franchisees are trained, motivated and managed… It might seem obvious, but if you allow your franchisees to do their own thing, you would be very lucky to have a network of franchisees and staff that are pulling in the same direction.’

Much of the above is having an impact on the skills required to successfully run a franchise. Nowadays typical franchisees look less and less like shop owners and more like investors or managers: acting in the back offices, formalising processes and constantly looking for the next big thing.

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