The Franchise Market In The UKPosted on: Wednesday, 20 May 2020 4:40 pm
When thinking of franchise companies, your mind may go straight to the American giants such as McDonald’s, Subway or Starbucks. We don’t often associate everyday businesses with franchising, when in fact, 80% of the UK franchise market is UK-owned and developed. The franchise industry is becoming stronger and stronger over time, and the number of franchised businesses has reached around 48,000 units, with around 710,000 people employed within the sector. The NatWest study into the UK franchise market showed that 92% of franchised companies were running in profitability, and even more recent studies have suggested that figure is more likely around 97%.
What Makes The UK Franchise Market So Successful?
According to NatWest, as of 2018, the franchise industry was worth £17 billion and has proven it has a lot to offer to the UK economy as a key player in the UK business world. Unlike traditional start-up businesses, the rate of failure is extremely low, with less than 1% of franchised businesses closing due to failure. The industry even remained steady during the last recession, showing the strength and longevity of the franchise business model.
Franchising is a reliable business model for both the franchisee and the franchisor. For the franchisee, it’s a lot less risky than opening a business from scratch and so by opening a registered franchise business, you are provided with an existing, proven business model. For the franchisor the risk of failure is also reduced as expansion through franchising is a lot more affordable than company-owned expansion, with considerably less upfront capital needed.
One factor that is a major part of success for franchisors and franchisees is the brand recognition associated with an -established organisation. Customers may be already aware of the brand or can look it up easily to get a sense of who they are and build trust. In a franchise business model, methods and operations have already been tried and tested , and so it reduces the time for trial and error or cost of failings and mistakes within a start-up.
How Is The Franchise Market Sector Evolving?
Recent data from the past few years shows that the number of new franchised businesses has only increased by a fairly small margin of around 1%, however, the number of actual franchise units has grown by around 25%. It is thought that one of the main reasons for this is the increased growth amongst the very largest franchise systems in the hotel, catering and personal services sector over the last 5 to 10 years. In this country alone, franchising systems continue to be owned by UK owners. Further to that, 4 in 5 UK franchise systems are run by the owner of the business.
Some notable industries that have seen exponential growth are coffee shops - for instance, 10 years ago Costa Coffee had 170 units, they now have 2,300! Another growing franchised industry are care homes: Bluebird Care Homes, for instance, has grown from 35 units to 188 in less than 10 years.
Looking at the wider picture of the sector across the last 25 years, it is thought that the number of franchise units in the UK has nearly doubled, with much of this increase being pinned on the hotel & catering sector. The ever-growing rise of pub chains, coffee shops and fast food stores has increased the sector to 48,600 franchised units that exist in the UK today.
The Impact The Franchise Market Has On The UK Economy
It may not surprise you to know that the franchise industry contributes just over £15.1 billion to the UK economy. When you hear “franchise”, you probably think of the main players, however, newer, smaller franchises that are a vital part of the UK franchise industry have grown by a whopping 10%.
Franchising likes new ideas – business models that come to market as new franchises are often in high demand – particularly if they are in a new sector or a sector that is growing significantly and a proven franchise can offer individuals the opportunity to get into a growing market at an early stage and benefit from the business model that the franchise offers.
The UK franchise market has also shown itself to be incredibly recession-proof. Between 2006 and 2016 there was a 70% increase in the number of people employed by franchises, from 365,000 to over 600,000 people. Plus, more than 50% of franchises have a turnover that exceeds £250,000 with an incredible 97% of them running a profit.
6 Benefits To Opening A Franchise Compared To Starting Your Own Business
If you have ideas of forging your own business and shaking things up in your chosen industry, have you thought about opting to join a franchise instead? It might feel like you don’t have a lot of control, but that couldn't be further from the truth. Franchising offers strong branding as well as the chance to join an established business, plus many franchises are always on the lookout for franchisees, a testament to the consistency of the business model for both parties.
There are loads of benefits to joining a franchise but we’ve distilled it down to 6 of the best reasons:
- Strong business relationships - As franchisors have already done the hard yards of client and relationship building over the years, they tend to be an expert in both their sector and franchising as a whole. Franchised businesses tend to be more recognised on both a national and international scale, and receive more credibility which in turn makes it easier to instigate a strong supply chain and gain access to prime locations.
- A well-established business model is already in place - There is no need to try new operational methods and procedures for them to fail in a franchise system. The processes are already in place and are already successful, you simply adopt them - one less thing to worry about! Furthermore, a lot of franchise brands are recognised across the globe meaning they bring an international reputation, making it easier for popular franchisors and franchisees to be successful. Customers are going for the brand and don’t feel like they have to take a chance on you, which means greater security, success and less risk.
- Franchises are successful - It’s a well-known fact that franchises have a far higher rate of success than start-up businesses. According to NatWest’s 2018 franchise report there “is little or no evidence" that franchisees are experiencing commercial failure, with just 2% experiencing forced change over the past few years. This low percentage of forced change is arguably down to the significant amount of work that has already been achieved by the franchisor.
- The business’ viability is there for you to study - When choosing what kind of franchise to join you can spend time assessing which one is most successful and which one is the right franchise for you. Franchises don’t go up in a puff of smoke, which gives you time to network, use your connections and find out information before agreeing to join the franchisor.
- Low risk - There is always risk when opening up a new business, franchise or not. Exogenous shocks, financial crashes and poor recruitment are just a few of the things that can hurt a business. However, on the whole, opening a store with the backing of the franchisor is known to be far less risky. From a financial point of view, a lot of franchisors may share their financial figures with you so you go into things with a clear expectation of what to expect.
- Enjoy support from the start - As we previously mentioned, the franchisor has already done a lot of the hard work years before. They have a strong bank of experience and a wealth of knowledge about the industry they operate in. From day one you can draw on all this experience and knowledge and avoid making the early mistakes that most start-up businesses make.
Get In Touch With The Franchise Company
If you own a business in England, Scotland or any other areas in the United Kingdom and you want to franchise it to help drive growth, sky-rocket your brand recognition and work with a company that you can trust, then The Franchise Company is for you. Have a read about our history and how we can help you, then get in touch and let’s get talking about franchising your business!