Franchising maintains 90% profitability

The release of the latest survey figures on the UK's franchise industry reveals that franchising is weathering the storm of the credit crunch

The British Franchise'Association/NatWest 2009 UK Franchise Survey has placed the total economic contribution of the country's franchising activity in 2008 at £11.4 billion. With the start of the recession hitting during this period, this represents an eight per cent drop from the £12.4 billion generated the previous year but a still impressive increase on the £10.8 billion reported in 2007.

Despite this 90 per cent of franchise owners surveyed reported profitability, a comparable level to last year's 91 per cent. Turnover levels have dropped by nine per cent, from £360,000 to £326,000, although two thirds of those surveyed achieved or over achieved on their projected turnover for that period.

The credit crunch failed to prevent a 3.6 per cent increase in the number of companies actively franchising in the UK, with the total number reaching 838. "It appears that 2007 was an exceptional year for the franchise industry, with rampant and above average growth in every respect," reflects Graeme Jones, Head of NatWest's Franchise team. "This level of growth isn't sustainable in the current climate, and 2008's performance is more in line with historical trends. It is still too early to tell how the full impact of the recession will impact the franchise industry, but NatWest remain committed to lending to the sector and maintaining our position as the leading bank for franchising."

Brian Smart, Director General of the British Franchise Association, adds: "There is little indication so far of the recession having a severe impact on the franchise industry. It seems franchised businesses are in a much stronger position as they have the additional protection of a proven business model and brand and are a lower risk option for customers."

The survey attempted to gauge the level to which the recession is affecting franchising by measuring the confidence of franchisors and franchise owners, finding that 60 per cent of franchisors and 66 per cent of their franchise owners think that general economic conditions will become more difficult in the next 12 months. However, the survey points out, not unlike economists, the franchise industry has tended to be somewhat pessimistic in outlook and has in some senses been forecasting the current recession for at least the last eight years'. In fact, confidence in their own businesses is much higher with 82 per cent of franchisors anticipating that their business will improve or stay the same over the next year.

"Franchising continues to be an attractive business model for entrepreneurs, and the recession is putting more potential franchise owners in the market and enabling the recruitment of really high quality staff, who may be struggling to get employment through other routes," continues Graeme Jones. "Despite the economic downturn, franchisors and franchise owners are starting to benefit from a number of cost savings that are beginning to filter through.

"These include reductions in commodity and energy prices, and those with retail premises are also taking advantage of more flexible negotiations with landlords regarding the provision of rental payments. We are also seeing evidence of franchisors and franchise owners becoming much more hands-on with their business, to ensure high standards and sales targets are maintained through this difficult period."

Brian Smart concludes: "It's clear from this survey that the franchise sector is proving resilient to the economic downturn by investing heavily in activities to drive business forward and ensure future success. It is a mark of the enthusiasm and commitment of franchisors and franchise owners that they continue to drive new business and retain it with such vigour."

Reported by Stuart Anderson