Linda Whitney gets the views of industry experts on what to expect in 2017
What’s the outlook for franchising in 2017? Crystal ball gazing is always hit and miss business, but for the UK in 2017, the effect of the Brexit vote makes the view even harder to see than usual For the economy as a whole, the British Chambers of Commerce has cut its GDP growth prediction by more than half for 2017 - from 2.3 per cent to one per cent. That would be the worst economic performance since 2009, when the UK was emerging from a deep recession. It has been interpreted as showing that businesses remain nervous about the prospect of protracted Brexit negotiations and potential trade deals.
Meanwhile, the Bank of England also sees a sharp slowdown in GDP growth to just 0.8 per cent in 2017, from two per cent in 2016.
The air of uncertainty was cleared a bit with Theresa May’s announcement that she would trigger Article 50 by the end of March 2017, but the subsequent November 3 court ruling that the government does not have the authority to proceed with Brexit without the approval of Parliament threw the situation into disarray again.
Against this background it’s hard for even the most avid franchise sector watchers to predict what will happen to UK franchising next year, but some have been willing to speculate and a few trends are starting to emerge.
Rise of the super franchisors
Brian Duckett, chairman of franchise consultancy The Franchising Centre, says: “The trend we are experiencing is of mature franchisors looking to exit their networks.
“Alongside this is an interest from practising franchisors and others, such as private equity investors, to acquire established and emerging networks.
“Many of these investors see the attraction of building stables of franchised brands. The unique skills of franchising, such as recruiting, training and managing franchisees, are then centralised and operated more efficiently.”
He predicts: “The next couple of years are likely to see a number of networks changing hands and the owners of those that have been properly prepared becoming quite wealthy.”
This is in line with trends overseas. In Australia, which has the world’s highest number of franchise systems per capita, advisory and investment firm KordaMentha predicted in 2012 that: “Australian franchising is expected to experience a consolidation path similar to that of the US franchising industry five years ago.”
The growth of super franchisors has already started. Franchise Brands, the AIM listed franchise group that owns ChipsAway, Ovenclean and MyHome, announced on November 1 that it had acquired pet services franchise Barking Mad. The move is part of an ongoing strategy of growth through acquisition.
Executive chairman Stephen Hemsley says: “We want to be a company with a market capitalisation of £100 million, so expect to see more acquisitions in 2017. We are actively looking for the right franchises providing services to individuals and small to medium-sized enterprises, especially in the business-to-consumer service sector, though we would not rule out business-to-business franchises.”
Lee Dancy, who continues as managing director of Barking Mad, says the consolidation trend could suit other franchises: “This is a very powerful combination for an independent franchisor who sees their brand’s potential, but perhaps wants the security a bigger entity can offer.
“I retain a high level of autonomy within a bigger group that increases the prospect of sustained future growth. We enjoy the expertise of the Franchise Brands board, infrastructure and purchasing power of the group, giving us the impetus and confidence for a strong 2017 and beyond.”
More multi-unit deals
Suzie McCafferty at franchise consultant Platinum Wave is positive about the year’s prospects, but says: “What we’d love to see in 2017 is an increase in available commercial property, so new brands could enter the market more quickly and in greater numbers, particularly in the food sector.
“We work with a number of serial franchisees, who have large portfolios of multiple brands and are as keen as ever to find out about the next big thing and are actively investing in multi-unit deals that will see them opening new stores right through next year and beyond.”
The factors that have led to the rise of home care franchises are still in place, so the growth in that sector is likely to continue in 2017.
Suzie says: “I think the current interest in children’s activity franchise brands will also continue to rise, as will the number of enquiries to the top home care brands. I also predict we’ll be seeing some fantastic new food franchise brands on our high streets that will be the household names of the future.”
Estate agent Countrywide has predicted house prices will fall by one per cent in 2017 everywhere except Scotland. If this stops people moving house, it will be bad news for estate agency and property related franchises, but could be good news for home maintenance and renovation franchises, as people improve their existing homes instead.
Brexit uncertainty could also mean an increase in clients for franchises offering business advice and support, as companies seek their help to formulate strategy to deal with the changes Brexit could bring.
Will the uncertainty going into 2017 affect the numbers of potential franchisees coming forward?
Stuart Walsh of Franchise Finance, which helps franchisees raise funds, says: “It’s unclear whether Brexit uncertainty will mean potential franchisees hold off investing in 2017.
“One franchisor I spoke to said they had lost one potential franchisee because of Brexit, while another said an intending franchisee had decided to defer their investment decision until spring 2017. But other franchisors have told me it has had no effect.”
As we saw in the last recession, economic uncertainty tends to discourage career changes. But Stuart points out: “When jobs are uncertain, people may see taking control of their own destiny with a franchise as a safer option, especially compared to a job in a company that relies on exports to the EU.”