Franchising Predictions for 2016Author: Andy Fraser, Harper Macleod
We already know that 2015 was a great year for the Franchise Industry in the UK, thanks to the latest survey from the British Franchise Association (British Franchise Association/NatWest Franchise Survey 2015). Published at the start of 2016, this showed that the UK's Franchise Sector is operating at record levels with all-time high reports turnover, employment and numbers of franchisee-owned businesses.
But what do the 12 months ahead hold for franchisees, franchisors and the many people who would like to get involved in franchising?
As leading advisers on franchising in Scotland and beyond, along with some of our friends in the industry we turned on our crystal balls and put together a Franchising Trends Briefing for 2016 which identifies key trends to look out for in the months ahead.
The state of the nation: 2015 report
Before our predictions, here are some of the key points to note from the BFA survey:
- Franchising Contributed £15.1bn to the UK economy last year (up more than 10% since 2013)
- Franchising employs 621,000 in the UK (also up more than 10% since 2013)
- There are over 44,000 franchisee-owned business in the UK (one third of which are run from home)
- 97% of those franchisees report profitability (and over half of them report turnovers in excess of £250,000
- Less than 1% of franchisees closed their business in the last 12 months due to "commercial failure".
- 9 in 10 Franchisees declared that they are satisfied with their relationship with their Franchisor
Brian Smart, director general of the bfa, said: “Good franchising continues to deliver serious dividends for Britain’s economy, creating businesses, jobs and wealth for local communities across the country. Established trends of strong profitability and very low failure rates over the last 20 years highlight the benefit of self-employment through franchising, a path that more and more individuals are taking. The outstanding performance of the sector, in good economic times and bad, shows the power of the franchise model and its impact on the UK’s business landscape increases each year".
Trend 1: Food Glorious Food
Suzie McCafferty, Platinum Wave
The growth strategy implemented by Ray Kroc at McDonalds has become commonplace in the food service industry. From Subway to Starbucks and Dominos to Dunkin Donuts, food franchises adorn the high streets of the UK’s towns and cities, but what does 2016 hold?
Quick Service Restaurants will continue to lead the way with new entrants to the market like aspiring national Chinese restaurant and takeaway franchise ‘Hotcha’ hoping to see continued strong growth, by attracting franchisees with the experience to commit to multiple units. Meanwhile established food brands in the UK will continue to seek opportunities for franchising overseas to grow their brands into new markets, with the Middle East being a particularly popular destination. We also expect to see growth in the “food truck” market with more and more franchisees investing in mobile franchise operations targeting food fayres, farmers markets, tourist attractions and entertainment events. Conversely, we are also seeing some brands like Hog Roast specialists OINK, building on success in the food fayre and outdoor catering sectors by offering retail franchises on the high street.
In a sector where many of the household names are running out of new territories to offer potential franchisees (or existing franchisees looking to expand), we expect to see some pretty fast growth for new brands that can offer the same kind of returns for a similar investment level. It’s going to be an exciting year.
Trend 2. Yesterday Multi-Unit, tomorrow Multi-Brand
Euan Fraser, AMO Consulting
The concept of Multi-Unit franchising has been around for many years. This is where a Franchisee opens more than one franchise unit in their territory. It’s appealing to Franchisors because it enables them to have experienced operators running multiple units whilst keeping the number of franchisees in their network at a manageable level.
However, in the UK we are yet to see the growth of Multi-Brand Franchisees (where a franchisee may, for example, own 5 Papa Johns Franchises and a number of Baguette Express franchises or even alternative retail franchises. Instead, Franchisors in the UK have traditionally been focused on recruiting franchisees for their brand only, rather than seeing the benefits that a sophisticated franchisee with a wider portfolio could bring to the table. We predict Multi-Brand Franchising to be more widely discussed in 2016.
Trend 3. Re-Franchising for Retailers
David Kaye, Harper Macleod
As the success of franchising in the UK continues to grow, we expect to see an increase in the number of retailers commencing a programme of refranchising. Essentially, refranchising is where a retailer sells off its corporately owned stores to franchisees. The reasons for doing so may be to raise funds for the company to pay down debt or to fund other growth strategies. One of the many advantages of refranchising is that, generally speaking, it allows retailers to replace store managers with harder working, more motivated franchisees who will do a much better job of running the business and promoting the brand locally.
Trend 4. Cloud Power
Carl Reader, d&t Chartered Accountants
I’m seeing an increased desire for cloud based operation systems: brands which had previously relied on legacy CRM and financial management systems are starting to move away from desktop or primitive cloud ‘one size fits all’ packages to modular packages which provide them with real time information from the ground level. These are allowing franchisors to select best in class components such as CRM, EPOS etc and consolidate the information from the tools that work for them.
With the release of the BFA / Natwest Franchising Survey, I also predict a further increase in the number of franchise outlets from 44,000; due to the increased press and publicity surrounding franchising, and the strong economy that we are currently experiencing.
Trend 5. Resales
Andrew Fraser, Harper Macleod
For many “early adopters” who invested in franchises during the 1990s or 2000s franchising boom, the time has now come to consider selling their businesses and realising the investment that they have built up over the years. Making a profit might not be the only reason for a Franchisee selling their business. The Franchisee might be looking to retire, relocate, pursue other business interests or they might simply have realised that the business they chose is no longer for them. Regardless of the reason for the sale, we predict that the number of Franchise Resales taking place in the UK will grow in 2016.