Special Feature

Business Information - FRANCHISING OUTSTRIPS UK ECONOMIC GROWTH FIVE TIMES OVER

8th April 2008

Despite an uncertain economic backdrop, the growth of Franchising continues to gain momentum, as the latest NatWest / bfa survey today reveals that the industry is now worth a record £12.4 billion. This represents a 15% increase on last year's performance (£10.8 billion), and means that the growth of the franchising industry last year outstripped that of the UK* economy almost five times over.

2007 was a year of expansion for the industry, The NatWest / bfa survey reports, with the total number of franchise units now reaching 34,200, which is the highest figure ever recorded. This also marks a healthy increase of 8% from the total number of franchise units in operation in 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% of franchised units making a profit during 2007, (93% in 2006), with the average turnover of these units being £360,000. This represents an 11% increase on the average turnover figures reported for 2006 (£323,000). What's more, just over a quarter of franchises reported a turnover in excess of £500,000 last year, compared to a fifth the previous year.

Graeme Jones, Head of NatWest 's Franchise team, comments: "With confidence in the franchise industry riding high, and with such positive prospects for expansion, it is little wander that the sector has experienced such rampant growth over the past ten 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 is also demonstrates that there is a growing market for the acquisition of established franchise units."

Brian Smart, Director General of the bfa, commented: "Franchised businesses now contribute more than £1 billion or more to the economies of Scotland and six out of the UK's eleven other regions, with the West Midlands also poised to break the £1 billion level. Existing systems are spreading into new regions and new systems are being generated in regions where franchising is under-represented - with the support in some places of the Government's 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."

The natwest / bfa survey also revealed that franchise systems are internationalising more than ever. A third (33%) of franchise systems control operations outside the UK, which is an increase of 27% from the figure recorded the previous year (211) and an increase of 75% compared to ten years ago, when just 151 franchise systems had overseas operations. With Europe being the preferred destination for international expansion, it is clear that the declining value of the sterling over the Euro over the past year has provided many franchise systems with the impetus to set up operations in the Euro-zone.

Looking to the future, despite inevitable concerns over the state of the UK economy, the overwhelming majority (81%) of franchisors anticipate that business will improve over the next twelve months, and the majority (53%) of franchisees expect their business to perform likewise.

There is also evidence that franchisors are becoming increasingly environmentally savvy. Last year, only one in ten franchisors had any carbon reduction measures in place. However, this year the figure has risen to a third (32%), with a further fifth (19%) of franchisors planning to introduce carbon reduction measures next year. Recycling waste (81%), reducing waste (80%), using energy efficient lighting (64%) and reducing the use of packaging (64%) were the key measures that franchisors are actively looking to implement to cut down carbon emissions from their business.

* *Annual GDP for the UK in 2007 was 3.1% compared to 15% for the franchising sector

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