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Why 2020 is the perfect time to invest in a franchise

Why 2020 is the perfect time to invest in a franchise

Despite ongoing political and economic uncertainty, prospects for the industry remain positive for 2020

Predicting the future is always a bit of a stab in the dark, but when it comes to 2020 it’s a full-scale knife fight at the bottom of a coal mine. Given the political chaos that reigns as I write this, it seems 2020 could see anything from a military coup to a civil war.

As autumn arrived, UK businesses were keeping calm and carrying on, despite the threat from Brexit uncertainties and creeping economic problems. By the time you read this, these uncertainties may have crystallised into something more definite - but they may not.

Under these conditions, making predictions about franchising in 2020 may seem a bit rash, but nevertheless…

Overall trends

British Franchise Association chief executive Pip Wilkins says: “We expect to see a continuation in growth that the franchise surveys have shown over the last 20 years, including increases in franchisors and franchisees, higher levels of turnover and reduced failure rates among franchise businesses.”

Trends that are likely to continue in 2020 include:

Multi-unit franchising

Pip says: “We are seeing more franchisees using their talent and experience to take on extra units and this is spreading from the bigger franchises to become more common among smaller ones.”

Increasing numbers of younger franchisees

“As well as more young franchisees who have inherited the business from their parents or who have become franchisees after working as an employee of the brand, we are seeing more who are buying into a franchise on their own,” Pip explains.

There are an increasing number of franchises offering employee apprenticeships and graduate schemes. “We expect to see more of that,” Pip says.

Growth of the green

Gudrun Cartwright, environment director of the charity Business in the Community, a membership organisation dedicated to responsible business, says: “We’re not there yet, but failing to evolve their behaviours and address climate change could prove an existential threat for businesses during the course of the next decade.

“Businesses that do not adopt more sustainable behaviours could not just find it difficult to recruit, but also suffer material and lasting brand damage.”

Many franchises are already marketing their green credentials. Sue Moore, managing director of the Bright & Beautiful franchise, which provides eco-friendly housekeeping services, says: “Bright & Beautiful is committed to sustainability and reducing the business’ impact on the environment by reducing plastic usage and waste of its eco-products, as well as protecting the health of its housekeepers, customers and planet.

“We are practising what we preach by taking action to do things in a way that has the lowest negative impact on the environment.”

Threats to the food sector

Food and drink franchises may be looking forward to 2020 with an extra degree of trepidation.

A downturn in the economy could mean people spending less on eating out and takeaways. On top of that, Brexit could bring supply problems, especially as the UK imports about 30 per cent of its food by value from the EU. In December 2018, the governor of the Bank of England estimated that post-Brexit food prices could rise by five to 10 per cent on average. A no deal Brexit has been forecast to bring delays in deliveries of perishable foods such as salads, soft fruits, fish and dairy products and changing agricultural tariffs on imports could increase prices.

In 2019, KFC and McDonald’s joined supermarkets in signing a letter, organised by the British Retail Consortium, to MPs. Its contents included this: ‘We are extremely concerned that our customers will be among the first to experience the realities of a no deal Brexit.

‘We anticipate significant risks to maintaining the choice, quality and durability of food that our customers have come to expect in our stores and there will be inevitable pressure on food prices from higher transport costs, currency devaluation and tariffs.’

Signatories included Paul Pomroy, chief executive of McDonald’s UK, and Paula MacKenzie, managing director of KFC UK and Northern Ireland. Food and drink franchises will doubtless be stockpiling ingredients where they can, but prospective franchisees in this sector who fail to ask franchisors in-depth questions about their preparations risk being seen as naive or just plain reckless.

Whatever happens, I’m betting franchising will still be around this time next year. Just make sure Gloria Gaynor’s I Will Survive is the theme tune at your New Year party.

Pip Wilkins

“We expect to see a continuation in growth”

Greater franchisee diversity

As more women, younger and older people and more people of colour enter the franchise industry, the old stereotype of a franchisee as a white, middle aged man is being eroded.

More prospective franchisees prioritising cultural fit

“We expect to see more franchisees looking for franchises that appeal to their personal philosophy in the next five years,”

Pip says, citing the rise of vegan franchises and those that appeal to people wanting to make a difference in society.

She adds: “Prospective franchisees are looking for a franchise that is a cultural fit with their beliefs, rather than just a business that solely exists to make money.”

More big brands adopting the franchise model

The bfa is predicting more big brands will turn to franchising. Vodafone opened its 100th franchise store in the UK in June 2019 and the Co-op announced it was looking for franchisees among existing independent retailers. There could be more to come in 2020.

Franchisee recruitment may improve

Brexit uncertainty has led prospective franchisees to delay making decisions - but this could change fast once the UK has a definite way forward.

Laura Harvey-Smith, speaking for herself and fellow consultants at The Franchising Centre, says: “I believe that, as long as something happens with Brexit rather than another delay, people will start to make decisions again. And based on the number of enquiries still being received, there should be a bottleneck building up which will be released at some point.”

More franchisors using technology

Laura predicts: “We will see increased use of more advanced technology for things like aiding franchisee recruitment, training new franchisees and franchisee support.

“This is an area where most franchisors fall down and where a reasonable additional investment will create efficiencies and cost savings that will increase as a franchise network grows.”

Gary Riches

“I think we can continue our growth next year”

Uncertainty can bring benefits

Gary Riches, Colchester franchisee with transport and logistics recruitment agency Driver Hire, says: “I’m optimistic about 2020. We’ve enjoyed a great year - turnover is around 20 per cent up year on year. With a similar approach, I think we can continue our growth next year.”

In 2019, Gary’s approach was to have an active marketing campaign during January, February and March, including promoting Driver Hire Training’s Driver CPC offer. He says: “This kept our name fresh in customers’ minds and clearly paid off.”

Driver Hire specialises in temporary and permanent drivers, so Brexit generated uncertainty was not necessarily bad news for its franchisees. Gary says: “We’ve noticed that transport operators aren’t replacing drivers who leave. Rather than recruiting, they prefer to hire temps from us.”

Daniela Lozneanu

“We only use eco-friendly products and equipment”

I chose the green option

Daniela Lozneanu, a former project manager at Jaguar Land Rover, was inspired to launch her own Bright & Beautiful housekeeping franchise when she struggled to find a reliable service in her area. Its environmental stance was an attraction.

Daniela says: “My team deliver a bespoke and tailored service that offers cleaning, tidying, laundry and ironing and like other Bright & Beautiful franchisees we only use eco-friendly products and equipment to ensure we protect the health of our clients, their children and the team.

“The products used are biodegradable, most are produced in the UK and they have been assessed to ensure they are as kind as possible to the environment. They are not tested on animals, nor do they contain any animal ingredients and have been approved by the Vegan and Vegetarian societies as cruelty free. Even the fragrances are sourced from nature.”

View from the franchise front line

Graham Duckworth, franchise sales director at Driver Hire, has been thinking about the future. Here are his thoughts on 2020
Recruiting new franchisees

I’ve been Driver Hire’s franchise sales director since 2012 and 2019 will be the best under my tenure. So far we’ve taken on 11 new franchisees, have two more purchasers currently in our training programme and the prospect of completing a couple more sales during the final quarter.

I think that’s good going for a mature franchise network in which almost all are franchise resales. We have plenty of enquiries in the pipeline and a leading and award winning franchise model to promote, so looking ahead to 2020 we’re feeling very positive.

Driver recruitment

Drivers are the lifeblood of our business. Driver Hire has just completed seven years of growth, so clearly our franchisees have the drivers to meet demand.

However, over the past few years there has been something of a squeeze on the supply of new talent entering the industry, which has made recruitment of drivers more challenging. The road transport industry in general is well aware of the problem and a number of initiatives are being considered to promote the industry as a career.

General outlook

The health of the transport and logistics market is driven by the UK’s economic performance, so if customer spending is under pressure, there will be less need to move goods around the country. The same applies to other key drivers of the economy, such as the building trade.

That said, we’ve been franchising for over 30 years and during that time our franchisees have weathered several economic downturns and come out stronger. I think that shows the strength and resilience of a Driver Hire franchise. It’s also worth noting that we have a good number of franchisees who’ve been with us in excess of 20 years.

There’s also a strong argument that our business thrives on uncertainty. At such times, employers are less likely to want to commit to taking on new permanent staff to meet any increase in demand. That makes the use of temps to create a more flexible workforce an attractive option.

Tackling 2020

Looking ahead to 2020, one of the attractions of a Driver Hire franchise is that success is self generated. Increased sales activity by franchisees is generally reflected in increased turnover. For instance, out of the 11 new franchisees we’ve taken on this year, nine are growing really strongly. Clearly they’re highly motivated new business owners keen to be successful, but this also shows that if you go out looking for it, there’s clearly business to be won.

Economic trends: Forewarned is forearmed

Accountancy firm KPMG warned in a September 2019 report that a no deal Brexit could spark a recession. The report described it as a ‘shallow recession’ lasting around four quarters, with GDP contracting by about 1.5 per cent.

Political turmoil is affecting the economy. The housing market is stagnant and retail sales fell by 3.1 per cent in September, aided by several retail closures. Meanwhile, forecasters were warning that the global downturn in manufacturing could be spreading to the services sector - the most important in the UK economy.

On the other hand:

A Brexit deal would boost the economy, said the KPMG report, with GDP rising by 1.5 per cent in 2020 and the pound appreciating by 10-15 per cent on news of a deal.

However, economists and forecasters are notorious for getting it wrong - the vast majority were surprised by the crash of 2008. Most of franchising survived the 2008 recession and the smartest franchises will have learnt some useful lessons from the experience, so they should be better equipped to deal with another one.

The author

Linda Whitney writes about franchising for the Daily Mail, What Franchise and many other publications


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