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GROWTH FIVE TIMES HIGHER THAN ECONOMY
The growth of franchising in the UK last year outstripped that of the country’s economy for the second successive year, according to the 24th annual NatWest/BFA survey.
With sales of £12.4bn, franchising grew by 15 per cent, compared with only 3.1 per cent for the economy, making its growth five times higher.
Franchisors grew by 3.5 per cent to 809 (a net increase of 28); franchise units by eight per cent to 34,200; and the number employed in the sector by three per cent to 383,000 which is 1.3 per cent of the working population.
The proportion of units that faced what the researchers term ‘forced change’ due to failure or disputes with their franchisor remained historically low, but increased compared to the previous year (1.8%: 4.6%). “While it is clearly too early to say whether this indicates an upward trend, it is a development that needs to be closely monitored,” warned the survey.
Ethnic candidates
A new trend detected by the report was that franchising is gradually moving away from the white, male dominated stereotype and attracting more women and people from ethnic communities with British Indians particularly prominent among the newer applicants.
Commenting on how franchisees make their choice, the survey reports that the split is almost even between franchisees who only seriously consider one specific franchise (48 per cent), and those who shop around (52 per cent). The leading reasons why franchisees select a specific franchise, in order of importance, are: growth potential, well-known brand, affordability, the candidate’s interest in the type of business, best suited to the candidate, success of the existing franchisees, location, and the candidate’s specialist knowledge of the franchise.
The survey showed the increasing popularity of resales. Around two in five of franchisees interviewed (37%) bought a resale and of those who joined their franchise in the past two years the figure rises to a sizeable three in five (61%).
Looking at the current year, the survey said the resale market was looking more buoyant, possibly reflecting continued faith in franchising and the higher levels of voluntary churn. The report showed that 52 per cent of systems predicted that they would offer resales this year, whereas their predictions back in 2006 for 2007 were that their resales would be less than a third. The net total predicted for this year is 1,400.
The majority of franchisees (56%) had no definite exit strategy, but when they did decide to sell most intended to sell to a third party, or transfer the business to a family member (12%). One in eight planned to sell to their franchisor.
High satisfaction
The vast majority of franchisees (88%) continue to be satisfied with relationship with their franchisor, but the more they invested the more they expected from their franchisor. Two in five franchisees investing over £20,000 were dissatisfied with their franchisor, compared with only six per cent of those investing less.
The main reasons for dissatisfaction related to lack of support, lack of communication, and the franchisor not living up to its promises.
The profitability of franchisees remained strong with little change. Some 91 per cent said they were profitable, compared to 93 per cent the previous year. Property services franchisees had the highest profitability ratio at 97 per cent, while at the other end of the scale in the retail stores sector 18 per cent were loss-making.
The survey was again conducted by BDRC for the BFA, under the sponsorship of NatWest, with the 2007 Franchise World Directory as its principal reference point. Copies are available from the BFA at £96 (member £20). To order call 01865 379 892 or visit www.thebfa.org.
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