What are the real advantages of franchising?September 19, 2016
No doubt you’ve heard the news and seen the figures: the UK franchising industry is growing apace. The contribution of franchising to the UK economy increased by 10% between 2013 and 2015, hitting £15 billion, according to the latest bfa Natwest Franchise Survey. That is 46% growth over the past 10 years.
The survey also found that the number of franchisee-owned businesses has increased by 14% in the past two years and that 80% of franchise brands here in the UK are home-grown.
That is all very impressive on a macroeconomic level, but what exactly are the advantages of franchising to individual business owners and entrepreneurs operating in the UK?
In the first part of this two-part blog, Roz Goldstein of Goldstein Legal looks at why it is that franchising is proving to be such an attractive choice for many business owners.
First up, let’s look at geographic growth. Let’s say that you have successfully launched a restaurant concept in your home town. To branch out from one outlet to three or four within, say, a 10-mile radius of the first one might be quite achievable. You can personally visit each site within a day, supplier deliveries are manageable, and it is most likely quite easy to shift staff from one site to another in line with customer flows at any one time.
But development on your own beyond this point can be difficult, without incurring the cost of a regional support team. And a regional support team may not pay for itself until you have a very much larger number of outlets, perhaps 20 or more.
With a franchise, you can appoint franchisees in hand-picked regions, who will develop the business for you. If you get it right – choosing the right franchisees in the right locations, and with a carefully planned training and support programme – your franchisees should be able to achieve the geographic growth of your brand that you can’t manage on your own. Or, certainly, they can collectively get there much quicker than you would alone.
Economies of scale
If well-planned, your franchise can give you substantial economies of scale, both in terms of the cost of products and equipment, and the cost of support.
It is no secret that restaurant chains, such as MacDonalds, Burger King and KFC negotiate food costs that small operators can never hope to match. Likewise, some of the most successful service-based franchises are able to spread the cost of their support services, such as Customer Relationship Management (CRM) systems and website functionality, across their whole franchised system, for the benefit of everyone.
Low capital outlay and lower risk
This is often a key driver behind the decision made by retail concepts to grow through franchising, in that it is the franchisee who incurs the capital cost of development, rather than you. Hand-in-hand with this, therefore, is the fact that it is the franchisee, not the franchisor, who bears the risk of the success or failure of the franchise, and therefore the risk in the capital.
Given that it is the franchisee who will have incurred the capital cost of opening the franchise, and who has potentially taken on long-term financial commitments to achieve this, they are therefore often heavily-invested in ensuring the success of their outlet. This can mean that they have a greater sense of dedication and participation than an employee-manager might have.
Franchisees know their territory
In the best franchised systems, the franchisee benefits from his/her local knowledge and contacts. In the case of retail concepts, this may give the franchisee a sense of the best locations, and for service concepts, the franchisee can use his/her network to find customers and suppliers.
Some franchise concepts benefit enormously from being able to service national accounts through their network of franchisees, securing some big customers who would otherwise be beyond their reach.
When it is done correctly, creating a network of franchisees increases the reach and awareness of your brand. This increased awareness will help you to secure customers, build value in your products/service, and in turn this helps you to recruit more franchisees.
Clearly, the above advantages make franchising an appealing option for a business owner looking to grow their operation. Before you take the plunge, however, we recommend that you seek advice from an expert franchise consultant. Not every business can be franchised successfully, and not every business-owner is cut out to be a franchisor. It is important to carry out the necessary research to ensure that franchising is the right choice for you.
Goldstein Legal’s commercial and legal insight can help you build a legal framework that protects your business and promotes its success.
This article was first published on FranchiseExpo.co.uk. Look out for our next blog – What are the real advantages of franchising? Part two: franchisees.