Franchising is big news right now and there are a large number of franchise opportunities for sale across the world. As a business model known for being pretty much recession-proof, it is also, as it turns out, pandemic proof too. While a huge number of businesses fell victim to the restrictions imposed by COVID-19, the majority of franchise businesses have managed to ride the storm to emerge intact.
The number of franchise opportunities
So how many franchise opportunities are there?
According to the NatWest British Franchise Association (bfa) franchise Survey in 2018, there are 935 franchise opportunities in the UK; around double what there were 20 years ago. These as a whole contributed £17.2 billion to the UK economy, employing 710,000 people and with 93% of franchisees claiming profitability and less than 1% of franchisors closing per year due to commercial failure.
Across the globe, one in seven businesses is a franchise – which equates to around two million franchised companies, employing 19 million people. According to the US Department of Commerce, franchising contributes a staggering $2.3 trillion to the global economy every year.
These figures give you a pretty good idea of just how strong the franchise business model is – and how many opportunities are out there if you know where to look.
Franchising is certainly a win-win for both franchisor and franchisee as the former is able to expand quickly (and internationally) in this manner whilst the latter enjoys all of the benefits of owning and running their own company without the inherent risks of starting from scratch.
Not all franchises are created equal
In order to get a full understanding of the franchise industry, let’s first take a look at the different kinds of franchise businesses that are commonly available:
Business Format Franchises
This incredibly popular type of franchise works based on the basis that an individual can ‘buy in’ to an established brand. The individual (the franchisee) will usually pay an upfront fee plus a royalty to the brand and will, in return, receive permission to use the brand’s logos and trademarks as well as ongoing support in running their franchise business. An example of a business format franchise would be Subway, a brand that has been replicated the world over.
Product Or Single Operator Franchises
This kind of franchise model is a great choice for those who are dipping their toes into the business world for the first time, as the initial investment tends to be smaller than with the business format. With this kind of franchise, an independent contractor, for example, a plumber, might invest in a niche franchise within his or her field. This will give the contractor access to the company branding, uniform and equipment for a reasonably low fee.
A little more complicated, this kind of franchising can be found within a number of industries, including fast food, toys and drink products. With this kind of franchising, the best example would be a producer of soft drinks who might sell its concentrated syrup along with rights to its branding to a bottling company who will then sell it on to numerous suppliers.
Taking a bite out of business
While it’s tricky to put a number on the entire concentration of franchise businesses worldwide, we can take a look at the franchise outlets of some of the biggest hitters in the franchise arena:
McDonald’s – With its instantly recognisable golden arches, the American burger giant has approximately 39,000 restaurants and drive-thru outlets across 119 countries across the globe.
Starbucks – Proving that our world is powered by coffee, Starbucks has around 32,000 stores in 80 countries worldwide.
7-Eleven – Concentrated largely in the USA, 7-Eleven boasts 55,000 stores and is ranked as the world’s second-largest franchise.
KFC – Founded in 1930, KFC’s 12 million daily customers in 115 countries are testament to the fact that a good formula never gets old.
Hertz – The World’s number one hire car company has over 9000 outlets in 147 countries and deals with a staggering 30 million reservations every year.
Pizza Hut – With 14000 outlets, Pizza Hut can be found in over 120 countries and tops sales of $12 billion.
Ace Hardware – With a modest 4800 outlets, Ace Hardware nonetheless enjoys global sales in excess of $13 billion.
From the above, you’ve no doubt seen a pattern forming – and you’d be correct. Products such as fast food and coffee are ideally suited to the franchise business model and are virtually recession-proof due to the fact that they tend to be low-cost items that consumers buy on a regular basis.
Having said that, rapid advancement in technology has seen a sharp rise in service-oriented franchises as well as those dealing in actual products – meaning that there are now more opportunities than ever before in this lucrative market.
The ones that got away
While models such as fast food and coffee are a good bet, there are others that should be avoided. As a rule of thumb, any franchise based on a trend or a demand which is likely to be short-lived is rarely a winner. Similarly, a franchise that sells a product in an overly competitive market can often be more miss than hit – and the following examples prove that it’s not always beer and skittles in the franchise world:
Blockbuster – During the late 80s and early 1990s, Blockbuster was a high street staple for those looking for their rented movie fix. Unfortunately, the fast transition from VHS to DVD and then to streaming meant that in November 2013, all but a handful of franchised stores had closed their doors for good.
Sbarro Inc. – Founded in Brooklyn in 1956, Sbarro may well have been the only kid on the block selling pizza in its early years but, by 2014, stiff competition meant that the company didn’t have enough dough to continue trading.
Woolworths – Once the UK’s favourite store, the doors slammed shut on Woolworths’ 800 stores in 2008. The main reason for the franchise’s failure? It simply failed to keep up with the times, and custom began to drop off as the public found the stores outdated and irrelevant.
What happens when a franchisor goes under?
This can be devastating for both the franchisor and franchisee and, in most cases, the franchisor’s business assets will be sold off to meet debts. These assets will usually include the brand and the franchise agreements. In many cases, a franchisee will be able to argue that the liquidation means that their agreement has been terminated and, therefore, they should be released from all and any obligations.
The future of franchising
As we emerge from the pandemic – and technology continues to march forward at breakneck speed, the sky really is the limit when it comes to franchise opportunities.
Buying into an established franchise business can be personally rewarding and extremely lucrative as long as you choose wisely. However, as with any kind of business undertaking (especially one where money changes hands), always make sure that you understand all the terms and conditions and, where possible, have a solicitor look over the paperwork for you to avoid any nasty surprises further down the line.