Franchise boost for regional economy
FRANCHISES in East Anglia have achieved a record turnover of �700million in spite of the recession, according to a study. The NatWest/British Franchise Association survey found that the region's franchises now account for 6% of the overall turnover levels for the industry, with approximately 2,200 based in the region and 29,000 people employed within them.
FRANCHISES in East Anglia have achieved a record turnover of �700million in spite of the recession, according to a study.
The NatWest/British Franchise Association (bfa) survey found that the region's franchises now account for 6% of the overall turnover levels for the industry, with approximately 2,200 based in the region and 29,000 people employed within them.
Nationally, the industry is now worth �11.4billion, and despite the downturn, the number of franchises trading profitably is unchanged compared to last year at 90%, the study found. This compares favourably with the height of the last recession in 1990 when just 70% of franchises traded profitably.
However, turnover levels have dropped by 9% over the past 12 months from �360,000 to �326,000. While the economic contribution of franchising to the UK economy is down by 8% from �12.4bn in 2008 to �11.4bn in 2009, this still represents an increase of 5% compared to 2006 when the figure stood at �10.8bn.
2008 was a year of expansion for many franchises, with the total number of franchise systems now reaching 838 - an increase of 3.6% on the 809 systems recorded last year.
Franchisors' expansion ambitions remain bullish, with an average of nine new franchise units planned over the next 12 months. The newer systems are looking to expand at a greater rate with an average of 14 new franchise units.
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Graeme Jones, Head of NatWest's franchise team, pointed out that 2007 was “an exceptional year” for the franchise industry with “rampant and above average growth”.
“This level of growth isn't sustainable in the current climate, and 2008's performance is more in line with historical trends. It is still too early to tell how the full impact of the recession will impact the franchise industry, but NatWest remain committed to lending to the sector and maintaining our position as the leading bank for franchising,” he said.
Brian Smart, director general of the bfa, said there was no indication yet of the recession having a severe impact on the franchise industry in terms of profitability.
“It seems franchised businesses are in a much stronger position as they have the additional protection of a proven business model and brand and, are a lower risk option for customers,” he said.
While the majority (60%) of franchisors and franchisees (66%) think that general economic conditions will become more difficult in the next 12 months, 82% of franchisors anticipate that that their business will improve or stay the same over this period, compared to 95% last year, while the remaining 18% expected business to become more difficult.
Franchisors and franchisees were taking positive action to protect their businesses against tough trading, with nearly a third increasing their advertising, a fifth improving productivity, 15% lowering prices and nearly a quarter increasing their existing client base.
Although the number of individuals employed in franchising has not risen over the last 12 months, the franchising sector still represents employment for 467,000 or 1.3% of the UK workforce.
Estimated start up costs have declined, and new entrants can expect to pay �50,400 in franchise fees and other associated costs to their franchisor, down from �64,900 last year.
Mr Jones said franchising continued to be seen as an attractive business model for entrepreneurs.
“The recession is putting more potential franchisees in the market and enabling the recruitment of really high quality staff, who may be struggling to get employment through other routes,” he said.
“Despite the economic downturn, franchisors and franchisees are starting to benefit from a number of cost savings that are beginning to filter through. These include reductions in commodity and energy prices, and those with retail premises are also taking advantage of more flexible negotiations with landlords regarding the provision of rental payments. We are also seeing evidence of franchisors and franchisees becoming much more hands on with their business to ensure high standards and sales targets are maintained through this difficult period.”