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Highlights from
The 2007 Natwest/BFA Franchise Survey The
annual NatWest/BFA franchise survey 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. The
results from this survey are based on the previous year, in this case 2006, with
fieldwork being undertaken mainly during December. In recent years it has shown
steady growth, a fact that is unchanged with the latest figures 2006
again saw record figures in all the key findings. Summary
In 2006 the industry grew twice as fast as the UK economy. Turnover
The estimated annual turnover of the business format franchise sector is £10.8
billion. It should be noted that this figure was £1 billion in 1984. Franchisors
Using a strict definition of business format franchising, the number of active
franchises identified was 781. This represents an increase of 3% on 2006 and demonstrates
the increasing choice for potential franchisees. Overall this is a 44% increase
over the last decade. 77%
of franchisors operate an independent system, 9% as a subsidiary of a parent company
and 14% on a master licensee basis. On
average franchise systems have been operating for 8.6 years. The
cost to a business in setting up as a franchise in the first year ranges from
£25,000 to £250,000, with the average being almost unchanged at £170,000. Franchisees
The number of non-dairy franchised units is estimated at 31,600. The
mean average annual sales per unit was over £323,000, the highest recorded
and only the second time £300,000 was breached. This however reflects a
wide range in individual unit turnover.
1.8% of units experienced some form
of forced change, such as ill health and financial failure (1.5%). This is very
much in line with recent years. 33%
of those who responded operate on a sole trader basis, 17% partnerships and 49%
limited companies. The
average age of a franchisee is also rising. In 1992 over half of all franchisees
were under 40, now it is one third. Also confirming the stability and maturity
of the sector is the average time a franchisee has been running their business.
In 1992 the figure was 3.9 years and in 2006 it was 6.7. Action
taken prior to purchasing a Franchise
Franchisees now undertake a number
of activities before purchasing a franchise, which include checking the franchisors
website (72%), investigating a number of franchises (54%), attend an exhibition
(30%), check the BFA website (45%), obtaining an information pack from the BFA
(25%), attend a NatWest sponsored seminar (11%), or attend a BFA seminar (7%). Employment
The employment generated by franchising is at the core of its contribution to
the economy as a whole. It is calculated that some 371,600 people are directly
employed in the franchising sector, another record. Profitability
The proportion of franchisees reporting profitability in the survey was 93% (compared
with 70% in 1991 and 88% in 2004). This is encouraging when looked at in conjunction
with the low failure rates. Recruiting
Franchisees
On average it takes a franchisee 5 months to decide to purchase
a franchise and a further 2 months to be trained and set up in business. Therefore
it can take a new franchisor up to 7 months to recruit their first franchisee.
Lack of suitable
franchisees continues to be the main barrier to growth, quoted by 71% of franchisors
when prompted. The other reasons for slow growth include a wish to expand slowly/steadily
(36%), lack of investment/financial backing (33%) and lack of available sites
(29%). This last figure is potentially higher when a number of franchises can
be operated from home or van/mobile. Regional
Distribution
This year's figures show that regional representation is
evenly spread across all regions, although Northern Ireland, Wales, Scotland,
the Northwest, West Midlands and East Anglia remain below the population index.
Franchisee
Profile sought by Franchisors
Franchisors do not require their franchisees
to have any specific skills or experience looking for a combination of skills
such as self motivation, marketing, sales, business, drive and commitment. Finance
The average initial outlay for setting up a franchise is £45,400, though
again this varies dependent on the sector. Banks
continue to be the most important overall source of finance. Around half of franchisees
borrowed money to set up. Of these 82% borrowed from the Banks (92% when over
£20,000). The
average amount borrowed, by those that do, was £50,500, up from £29,500
in 1992. The average
ongoing management service fee and advertising levy is 7.5% and 3% of franchisee's
turnover respectively. Franchisor-Franchisee
Relationships
Franchisor-franchisee relationship is of great importance in
determining the success of the business and reassuringly 86% of franchisees regard
their relationship as satisfactory. The majority of those that were dissatisfied
unsurprisingly were also loss making. Outlook
The franchising marketplace as a whole is generally optimistic about their future,
although less so about the economy generally. When asked about their expectations
over the next 12 months 82% of franchisors and 56% of franchisees forecast an
improvement in their business. Overseas
trading
211 franchisors have an operation elsewhere in the world. Note
1: The information in this document is extracted from the 23nd annual research
study sponsored by NatWest. Copies of the survey are available from the British
Franchise Association, telephone number 01491 578049/50. Note
2: The above information can be utilised in press articles, project work etc.
subject to an acknowledgement of the source. | 
