Record turnover as franchise sector shrugs off recession

Published on Tuesday 26 May 2009 21:06

SCOTLAND's franchising sector remains in rude health, generating record turnover of £800 million last year, according to new research.

It marks a modest rise on 2007 and comes despite the contribution of franchising to the UK economy as a whole falling 8 per cent to 11.4 billion.

Although Scotland has few home-grown franchise businesses, the country is home to about 2,000 individual franchise units – including local operations for the likes of sandwich giant Subway and Domino's Pizza – employing some 26,000 people.

The British Franchise Association (BFA), which conducted the research along with NatWest, said franchising was proving resilient in the face of recession.

The survey, now in its 25th year, showed the number of UK franchises trading profitably was unchanged on 2007 at 90 per cent. At the height of the last recession, in 1990, only 70 per cent of franchises were in the black.

Brian Smart, director general of the BFA, said: "There is no indication, yet, of the recession having a severe impact on the franchise industry in terms of profitability.

"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."

Profitability was maintained, despite average turnover levels falling 9 per cent year on year, to 326,000.

Last year also marked a period of expansion for many operators, with the total number of franchise systems reaching 838 – an increase of 3.6 per cent.

Franchisers' prospects for expansion remain bullish, with plans to open an average of nine new franchise units over the next 12 months. Newer operators – up to three years old – are looking to expand at a greater rate, with an average of 14 new franchise units.

Last week, The Scotsman reported on the fortunes of East Lothian-headquartered sandwich shop franchise Baguette Express, which employs more than 500 people. Although the firm, which was launched ten years ago by brothers Robin and Billy Stenhouse, has scaled back its expansion plans due to delays in store openings and the banks' imposition of tighter loan criteria, it remains confident of opening about 15 new branches this year.

According to the BFA research, 60 per cent of franchisers believe that general economic conditions will become more difficult in the next 12 months.

However, conversely, 82 per cent anticipate their business will improve or stay the same, while the rest expect business to become more difficult. A year ago, 95 per cent of franchisers gave an upbeat forecast.

Graeme Jones, head of the Royal Bank of Scotland and NatWest franchise team, described 2008's performance as "more in line with historical trends". He said: "It is still too early to tell how the full impact of the recession will impact the franchise industry, but RBS remain committed to lending to the sector.

"Franchising continues to be an attractive business model for entrepreneurs."

The report said start-up costs had fallen and new entrants could now expect to pay 50,400 in franchise fees and other associated costs to their franchiser – down from 64,900 in 2007.