Economic Impact of Franchising in the UK

Whilst the UK is struggling with its ongoing economic difficulties within the context of a prolonged global downturn, the franchising industry continues to show interesting signs of success.

UK Franchising Continues to Grow

The UK's economy is continuing to experience downward pressures and yet the franchise industry is still expanding. In fact, in 2012, an increase of twenty-nine systems was seen, creating a new total figure of 929 franchises. Alongside this came an increase in franchise units to 40,100, which is a rise of 4pc. The overall contribution to the economy was 13.4 billion.

A Maturing Industry

There are now over one hundred larger franchise systems and there is evidence that these larger units are beginning to employ greater numbers of staff and enjoy a growth in turnover. The figure for average turnover has increased by an incremental 4pc and profitability is currently marginal for around 50pc of franchisees. However, this is only half of the picture because less than 10pc of franchisees are making a loss. There is also less evidence that newer franchisees are experiencing profitability pressures. But there is one caveat and that is confidence, as both franchisors and franchisees are experiencing business uncertainty because of pressures in the wider economy.

Satisfaction Indicators

Over 90pc of franchisees are reporting satisfactory business relations with their franchisors, which is the highest figure recorded in the past decade. Furthermore, 81pc of franchisees feel they have a definite competitive advantage in running their franchise. This belief is particularly strong in the personal-services and retailing franchise sectors.

There are around 38,000 franchise units in the UK, which shows a 4pc year-on-year growth. This is comparable to the results of 2009-10 and higher than in 2007-9, when growth was recorded at between 2-3pc.

Financial Indicators

Very few franchisees are failing to make a profit. Just 16pc who have been in business for the last two years (or less) are currently unprofitable and this figure has halved from the previous figure of 28pc. The entire franchise industry is now contributing 13.4 billion to the economy, which is an 8pc increase on the previous year. There are more franchised units than ever before, along with more actively franchising systems and a rise in average turnover, calculated via the mean. This now stands at 349,000.

Employment

There are an estimated 594,000 employees working in the franchising industry today, which is an increase on the 521,000 recorded last year. This is largely due to the changing franchisee profile, with businesses starting to employ more part-time staff on a flexible basis.

The changing face of franchisees themselves is also interesting. This year's mean average age is 49, which compares to 47 in 2011 and 46 in 2005. An increasing number of franchisees also have advanced levels of education, which mirrors wider trends in the UK. Men still represent 72pc of the franchisee market but the gender gap is decreasing over time. In fact, 38pc of newer franchisees in 2012 were female. It also seems that franchising as an industry is attracting many investors who come from an Indian background. A growing number of franchisees are also investing in multiple units. 27pc of franchisees now own more than one unit, which reflects an increasingly mature industry.

Future Trends

It is expected that the franchise industry will continue to show increased growth and profitability, particularly as many people leaving the public sector look for new career paths and have money to invest in their own businesses. Other exciting offshoots such as social franchising are also attracting attention and may very well revolutionise the charity and third sector in the way that traditional businesses were originally changed by the first fast-food franchises. One thing seems certain: franchising is going from strength to strength and will continue to offer attractive routes for self-employment for those looking to own their own business.

Sources for the statistics in this article are from the NatWest BFA Franchise Survey of 2012