With Brexit looming, 2019 looks set to be a turbulent year for the UK. What can we expect for the franchising industry in the UK? Despite Brexit nerves, significant positives for UK franchising are as evident as ever from the most recently published NatWest franchising survey. It shows that the franchising industry now contributes £17bn to the UK economy, and that contribution has increased in almost every year since 1984. The UK franchising sector now employs more than 700,000 people.
The number of franchised systems in the UK has grown since the last NatWest survey across all its categories of industry sector, and there are now 48,600 franchised units in the UK. Franchising has even stood up well for high street operators, particularly restaurants and coffee shops. This stands starkly in contract against what some retail analysts have described as the worst year for UK retailing in living memory, with a slew of household names, from House of Fraser to Mothercare to Carpetright entering into Company Voluntary Arrangements, and even restaurant chains including Prezzo, Carluccio’s and Jamie’s Italian closing substantial numbers of outlets.
Despite high street turbulence, Coca Cola nevertheless paid £3.9 billion in 2018 for the purchase of the Costa franchise chain from Whitbread. Proof positive that well-run franchised concepts continue to be seen as a good investment, indicating that they will continue to buck the trend.
For potential new franchisees, the benefits of buying into an established brand with a proven track record continue to appeal. The NatWest survey reports a recent uptick in the numbers of people using redundancy/unemployment as an opportunity to start afresh by becoming a franchisee, reassured that business failure rates continue to be demonstrably lower for franchises than for other new start-ups.
All the above suggests that franchising will continue to grow and that the sector is well-placed to out-perform the UK economy as a whole in 2019 and beyond.
The NatWest survey shows a rather flat position on franchise resales. But as some of the most popular franchised concepts reach maturity and some operators, particularly in the fitness and domiciliary care sectors, having full or nearly-full networks, my hunch is that 2019 will see a proportionate increase in the number of resales versus new openings.
Despite Brexit uncertainties, the UK is still perceived to be a strong market for overseas brands looking to expand internationally. The UK’s relatively uncomplicated legal/regulatory regime, and the ease of working in the English language, are key factors here. An EY report in March 2018 showed that the UK consumer continues to be perceived as a valuable asset for US and Canadian operators, although brands from Asia are showing some Brexit nerves.
Whilst the UK economy as a whole is expected at best to flat-line in 2019, franchising looks set to hold up relatively well. But franchising clearly does not stand entirely immune. It is currently anyone’s guess where we are heading both politically and economically in 2019. A “Hard Brexit” will cause a run on the Pound and substantial disruption to UK imports and exports this year, and prolonging the debate, either by deferring or suspending the leaving date or calling a further referendum or election will fuel International jitters about the UK.
Whatever happens, the UK is set for an interesting year in 2019.