2013 NatWest/BFA Franchise Survey

The annual NatWest/BFA franchise survey for 2013 has now been published, and makes very useful reading for anyone involved in franchising in the UK. It monitors the performance, attitudes and opinions of the franchise sector and thereby builds up a larger picture of the contribution of franchising to the British economy.

This year’s report shows continuing maturity within the sector, but reflects
the challenging economic environment. It shows that the franchise industry has grown at a far higher pace than the economy as a whole.

Turnover

The report estimates that UK franchising currently achieves a total of £13.7 billion
(£13.4 billion in the last report). This is 1% of annual GDP and a 20% growth over
the recession, compared to the economy in general that has shrunk 2.5%.

Franchisors

• There are 930 active franchisees. This includes72 departures during the year and
  73 new concepts.
• During the recession the number of franchisors has increased by 10% overall.
• 4 in 5 franchisors are now UK owned and run.
• Property services form the largest subsector, with 218 systems. Personal services
  has seen the largest growth (25%) since the recession began in 2008 and now has
  the most franchisees at 8,700.
• The first year set up costs in setting up as a franchise business in the first year
  ranges from £20,000 to £900,000, with the average being £150,000 – £170,000. This
  has remained fairly static for a number of years.

Franchisees

• The number of franchised units is estimated at 39000 – a 70% increase over the recession.
• There are estimated to be 22,400 franchisees, and 1 in 4 of them operate more than
  1 unit.
• Mean average annual sales per unit were 356,000, the highest recorded since the
  2007 record of 360,000.
• Overall franchisee “churn” was 10% (of which 2.3%, the largest reason, was financial
  failure. The failure rate for this year is the lowest reported during the recession
  (2.6% in 201 and 3.2% in 2009).
• The average age of a franchisee is 47, with those having just started having an
  average age of 41.
• Men account for 70% of franchisees, though this has dropped from 78% in 2005. In
  2006 just 16% of new franchisees were women, whereas this year the figure is 30%.

Employment

Some 561,000 people are directly employed in the franchising sector, a 20% increase
during the recession. For the first time there are over 250,000 full time employees.

Profitability

• The proportion of franchisees reporting profitability in the survey was 92% (compared
  with 70% in the last recession of the 90’s). This is good news when looked at in
  conjunction with the low failure rates. However this figure drops to 80% for those
  trading for less than 2 years, though this is perhaps understandable when many businesses
  do not move in to a profit unti1 their second year.
• The biggest barrier to a franchisors growth is the lack of Franchisees. On average
  it takes 250 leads and 25 interviews to recruit 1 franchisee.
• The main reason for not selecting an applicant is lack of capital (68%) and their
  performance during the interview (62%).
• The most useful recruitment channels for franchisors are their website 78%, word
  of mouth (77%), social networking sites (45%) and other websites.
• The median amount spent on recruiting franchisees is £10,000 per annum, though a
  number of systems spend in excess of £100,000.

Investment costs

The average initial investment for a new franchisee is £52,000. This of course varies
dependent on the sector, up to £142,000 for Hotels & Catering. The average initial
investment on a resale is £64,000. 36% of franchisees reported that they bought
an existing unit when they joined the franchise.

Franchise relationships

The Franchisor-franchisee relationship is of great importance in determining the
success of a franchise business , and reassuringly 84% of franchisees regard their
relationship as satisfactory (the highest figure since 2001). Unsurprisingly those
dissatisfied tend to be those that are loss making.

Outlook

88% of franchisors, and 54% of franchisees, expect improved trading conditions.

The information in this document is extracted from the 29^th annual research study sponsored by NatWest. Copies of the survey are available from www.thebfa.org