£15 billion UK franchise sector fuelled by foodservice chains

Subway store using Merrychef

The franchise sector in the UK is operating at record levels and worth £15.1 billion a year, with foodservice and restaurant chains leading the way, new research has revealed.

A report from the British Franchise Association and NatWest now employs 621,000 people, up 10% over the past two years. The number of franchisee-owned businesses has increased 14% over the same period, topping 44,000 in 2015.

In the foodservice sector, the eight largest brands now account for some 7,700 units between them, an 11% increase compared to five years ago. There has continued to be a significant transfer of units previously owned by chains across to franchisees in a large number of brands, which has also driven the growth.

The report said: “The hotel and catering sector has shown much of that growth, particularly in the fast food sector where franchising is a key method of delivery for a number of major, household name brands. Franchised Coffee shops have seen considerable growth over the last few years, with major brands now using franchising to grow in the UK.”

In addition, the report said, there are a small number of franchises with significant unit numbers but very low turnover levels, reflecting their low investment cost and limited growth potential per unit.

The performance of franchisee businesses in general also set new benchmarks last year, with 97% reporting profitability and over half turning over in excess of £250,000.

The report found that employment per unit continued its upwards trajectory, with one-third now employing 10 or more staff. There was notably a large rise in the number of units in the hotel and catering sector who tend, on average, to employ more people.

A long-term trend of very low commercial failure rates continued, with less than 1% of franchisees closing their business for this reason in the last 12 months. Franchisee-franchisor relationships are correspondingly at their strongest recorded level, with nine in 10 franchisees declaring satisfaction.

Home-grown success is converting into export success: four out of every five brands in the UK are domestically owned, with 38 per cent expanding their business model overseas and a further 11 per cent considering doing so in the future.

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.”

The report also suggested that more younger people are entering the franchise sector, with one in five franchisees that started their business in the past two years being under 30 years of age.

Andrew Taylor, NatWest head of leisure, retail and franchise, commented: “Franchise offers a truly compelling alternative to start up operations with global and national brands, tried and tested operating systems and processes, and huge marketing support so it is no wonder we have seen a steady growth in entrepreneurs investing in franchises.”

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