Franchise Industry Research:
NatWest bfa Franchise Survey
Beginning research on the franchising industry in 1994, the British Franchise Association (bfa), with the outstanding support of NatWest, has been building the most detailed long term franchise survey in the world. The full annual report can be purchased through the bfa’s online bookshop.
The following gives an overview from the last published report (June 2012) to give an overview of the UK franchise industry today.
In spite of continuing economic pressures on the economy as a whole, franchising in the UK continues to expand. This year we see:
- A net increase of 29 systems leading to a total of 929 franchises
- A corresponding increase in the number of units by 4% up to 40,100
- A modest growth in full-time employment in proportion to the increase in units in operation, allied to a real increase in part time jobs; indicative of an industry kept sustainable by its flexible labour resource
- Leading to an overall contribution of £13.4 billion to the economy
Structurally, the industry is maturing with more ‘larger’ systems (100 units+) and indications of a rise in the number of larger franchised units employing more people and with higher turnover.
Although increases in average turnover figures are only incremental (4%) and profitability is only marginal for around half of franchisees, the proportion of loss-making franchisees is less than 1 in 10 for the first time since 2007 and there is less sign of profitability pressure on newer franchisees.
The only caveat to this is that business confidence has slipped once more for both franchisees and franchisors: the future once again appears uncertain.
In two-thirds of cases, franchisors make the start-up process more straightforward by rolling all costs together into a single fee. Where there is a single cost, the range is from £14,000 for a Personal Services franchise, up to £105,000 for a Catering franchise.
90% of franchisees have satisfactory relations with their franchisor, the highest proportion recorded over the past ten years.
4 in 5 franchisees (81%) believe they have a competitive advantage (over other small businesses) as the result of running a franchised business. This is particularly true of the customer-facing franchises in Store Retailing and Personal Services.
Franchise industry size
A key estimate as to the size and health of the industry is the ‘total number of franchised units’. We currently estimate that there are a total of 38,400 non-dairy franchised units in the UK. This represents growth of about 4% year on year, similar to that experienced between 2009 and 2010 and somewhat higher than the 2% to 3% growth seen between 2007 and 2009. Looking back to 1995 and 1996, we can see that the number of non-dairy franchised units has virtually doubled over a 15 year period.
Another solid indicator of the health of the industry is the degree to which each individual business unit considers itself to be profitable or not.
While it is clear that at the upper end of the scale fewer are ‘highly’ profitable, the proportion of franchisees who are failing to make a profit remains low (particularly when we look at the impact of the recession). Newer franchisees are a little more likely to be loss making – however, compared to a year ago when 28% of franchisees running for two years or less were unprofitable, this proportion has virtually halved in the course of the last year.
Robust and sustained growth through the recession
At a structural level, the number of franchise systems continues to grow; the current estimate for the number of franchise systems operating in the UK is 929.
We have identified that, although 35 franchise systems withdrew from franchising between 2010 and 2011, 64 businesses adopted the franchising model and supported at least one independently franchised business unit.
The total economic contribution of the franchise industry now stands at £13.4 billion, up 8% on last year’s figure. There are two principal contributing factors:
- There are more systems actively franchising and a higher number of franchised units
- Average (mean) turnover, the other factor involved in our calculation, has also risen
The mean turnover per unit this year is £349,000, an increase of 4% from last year. We also observe a larger proportion of franchised units with a turnover of over £500,000. In many (although not all) cases, turnover will have been influenced by external factors, such as the overall rate of inflation (4.2% in 2011).
Employment in franchising
This year our estimate for the total number employed in franchising rises from 521,000 to 594,000 (a rise of 14%). On the face of it, this would appear to be counterintuitive, with thin evidence of a sufficient rise in turnover to support this number of new staff. However, examining the changing profile of franchisees over time, we observe that franchises have become (on average) larger businesses employing more people; for example, the proportion of franchisees employing 11 or more part time staff has risen steadily over the past 6 years.
Over the last few years, as the sector matures, we have observed an ageing franchisee sample base. The mean age this year is 49, compared to 47 last year and 46 in 2005. Although we did not ask franchisees about their qualifications this year, it is safe to say that an increasing proportion of franchisees have higher levels of education, reflecting the overall trend in the UK.
Whilst men account for 72% of franchisees, the gender disparity is falling over time; in 2005 78% were male. Further evidence of this can be seen when looking at new recruits to the industry. Whilst only 16% of newer franchisees were women in 2006, 38% of newer franchisees are female this year. Additionally, many franchise units are jointly owned and the recording of gender is based on who chooses to be interviewed or whoever is available to be interviewed. In terms of ethnicity, it’s clear that franchising (or at least certain franchises) is particularly attractive to those with an Indian background.
Although the majority of franchisees are single unit businesses (73%), a growing proportion of franchisees own multiple units compared to last year (27% in 2011 compared to 22% in 2010). As we noted earlier, this reflects a maturing industry. Half of franchisees in the Hotel & Catering sector own multiple units.