Franchising outshines economy

Despite an uncertain economic backdrop, the growth of franchising continues to gain momentum, according to the latest NatWest/British Franchise Association survey.

The report reveals that the industry is now worth a record £12.4billion, which represents a 15 per cent increase on last year’s figure of £10.8billion and means that the growth of the franchising industry in 2007 outstripped that of the UK economy almost five times over.

In 2007 the total number of franchise units in the UK rose to 34,200, the highest figure ever recorded and an eight per cent increase on 2006. Furthermore, for the first time in three years franchisors are optimistic about their prospects for future expansion. The average franchisor operated 42 units in 2007, but expects this to rise to 44 units by the end of 2008.

As the sector expands, so does its profitability, with an impressive 91 per cent of franchised units making a profit in 2007 - down from 93 per cent in 2006. The average turnover of these units is £360,000, an 11 per cent increase on the average turnover figures reported for 2006. In addition, just over a quarter of franchises reported a turnover in excess of £500,000 last year, compared to a fifth the previous year.

Says Graeme Jones, head of NatWest’s franchise team: “With confidence in the franchise industry riding high, and with such positive prospects for expansion, it is little wonder that the sector has experienced such rampant growth over the past 10 years. Franchising continues to significantly outperform UK economic growth and franchisors and franchisees remain confident about the prospects for their business.

“It is testimony to the strength and growing maturity of the franchise sector that the resale market is looking more buoyant for the year ahead, with just over half of franchisors expecting to offer resales in 2008 - up from less than a third last year. This is a sign that franchisors have an increasingly long-term vision for their business, with a keen eye on exit planning. It also demonstrates that there is a growing market for the acquisition of established franchise units.”

Says Brian Smart, director general of the bfa: “Franchised businesses now contribute more than £1billion or more to the economies of Scotland and six out of the UK’s 11 other regions, with the West Midlands also poised to break the £1billion level.

“Existing systems are spreading into new regions and new systems are being generated in regions where franchising is underrepresented - with the support in some places of the Regional Development Agencies. Overall, we can look forward to further growth for franchising in 2008, despite a hardening climate for the economy generally.

“In demanding market conditions, it becomes more difficult for businesses to differentiate themselves on price, which means that customer service becomes more important than ever. It is therefore testimony to the enthusiasm and commitment of franchisors and franchisees that they continue to drive new business and retain it with such vigour.”