THE IMPORTANCE OF FRANCHISING
When we talk about start-ups and entrepreneurship, rarely do we discuss the potential of franchising not only as a way of establishing new ventures in the economy but also as a method of growing existing businesses.
According to the British Franchising Association, franchising is the granting of a licence by one person (the franchisor) to another (the franchisee), which entitles the franchisee to own and operate their own business under the brand, systems and proven business model of the franchisor. The franchisee also receives initial training and ongoing support, comprising all the elements necessary to establish a previously untrained person in the business.
This enables individuals to start their own businesses without having to develop their own ideas and utilising an existing brand and established market.
Of course, whilst each franchise business is owned and operated by the franchisee, the franchisor controls the quality and standards of the way in which the business is operated and retains control over the way in which products or services are marketed and sold.
In addition, for businesses wanting to expand without developing their own outlets, franchising enables them to grow by granting a franchise to others to sell their products and services.
Whilst franchising hasn’t really taken off as a business concept in the UK and Europe, it is one of the enduring business phenomena in the USA. In fact, the growth in franchising was over twice of that for the US economy over the period 2016-2017.
The annual trends in the industry are captured by Entrepreneur Magazine in their Franchise 500 list which, not surprisingly, is topped by established brands such as McDonalds, 7-Eleven and Dunkin Donuts.
That is to be expected but any examination of what is happening in franchising in one of the world’s biggest consumer markets also gives a clear indication of where there may be potential opportunities in the future in other markets including the UK.
Not surprisingly, given that established franchises such as McDonalds, KFC and Subway dominate the perception of franchising, over 20 per cent of the Franchise 500 serve food, with the majority of these being quick service outlets in food areas such as hamburgers, chicken, sandwiches, pizza and smoothies/juices.
But the main food trend that is currently sweeping America (and may yet come to Europe) is that of poke which is essentially Hawaiian street food which consist of tubs of chopped fish tossed with salt, seaweed and kukui nuts.
More relevantly, its massive growth is being driven through franchising operations by companies such as Pokeworks, the Poke Shack and Pacific Poke.
Given some of the brilliant independent retail food businesses in Wales, one wonders whether they could also expand by doing the same?
What is also interesting is what the other categories in the Franchise 500 are telling us about changing consumer trends.
For example, five of the top hundred franchises in the USA are in childcare with other popular areas being children’s fitness and swim schools. In fact, health and personal services in areas such as physical therapy, fitness, hair care and senior care remain popular.
Seven of the fastest growing franchises in the USA are in health and fitness with one - Orangetheory Fitness Studios - having established over 700 franchises in the last seven years. This fast growing firm offers trainer-led group workout sessions of cardiovascular and strength training with each participant also wearing a heart-rate monitor that is displayed on screens during the workout. Yet, probably no-one in Europe has ever heard of this business that is set to continue its expansion quickly in the near future.
It is also worth examining what completely new franchise ideas are developing in the US market that are taking advantage of new recreational trends.
For example, “paint and sip” has become enormously popular amongst young professionals who pay around £25 for two hours of painting instruction and supplies, bring their own food and drink, and make an evening out of it. The leading venture in this growing niche market is “Painting with a Twist” which since being established in 2007 currently has 285 franchisees across the USA.
Therefore, franchising offers many opportunities for existing businesses on this side of the pond not only to take new ideas into different territories but also to boost start-up rates in different ways.
And even if individuals do not want to become a franchisee and wish to be in total control of their new venture, a detailed examination of the Franchise 500 will show where there could real market demand for different products and services in the future.