Pip Wilkins, Head of Operations at British Franchise Association (BFA), advises why expanding businesses should be looking at franchising.
Successful SMEs are usually adept at increasing their awareness and footprint within their local customer base and region. However, when it comes to expansion outside familiar territory, it can be a different story as geography, funding and staffing all become trickier to manage.
For businesses that want to grow further, franchising is an option that demands serious consideration. It’s a model of expansion that involves an SME owner (franchisor) granting a licence to another person (franchisee) to start their own business under the brand, systems and knowhow of the franchisor. The self-employed franchisee pays initial and ongoing fees in return for a proven package, training and continuing support.
Some of the best-known brands in the UK use a franchise model to expand, and even more of the domestic high street giants use it when growing overseas, both with great success. But it’s not just about the catering giants of franchising such as McDonald’s, Subway and Domino’s; O2 for example has now converted almost half their UK corporate outlets to franchises after very strong, sustained performance from their franchised division.
Franchising today encompasses a multitude of business types and consumer markets – over 900 brands use the model in the UK – and most people use the services of a franchise business, personally or professionally, every week, even if they don’t know it.
So if your business is proven, profitable, transferrable across different geographic areas and teachable to an outsider, you should be considering it if you’re looking to expand.
Why? Here are some of the advantages of franchising compared to organic growth:
More cost-effective growth
Your brand benefits from the capital investment and resources of others (your franchisees) so you require less capital than taking on more stores and more staff yourself. Fees are paid by franchisees to join the network (covering the cost of training them and establishing them in your systems) and then on an ongoing, monthly basis.
Once you have the right systems in place, franchises can expand at a quick rate. If you invest the time, capital and work into getting your model right from the beginning, then the only limitations on your expansion rate are the ability to recruit, train and fully support your franchisees.
Better results per outlet
A network of owner-operators can give you a more robust business compared to simply installing managers. Franchisees are often far more motivated and have a significant vested interest (financial and emotional) in the success of their business. Consequently, your brand can grow through a network of ambassadors with as much interest in making it the best it can be as you do.
Some of the UK’s biggest high street names frequently report a 30% upturn in store revenue when a company-owned outlet is converted to a franchised one.
Economies of scale
A franchise network can begin to take advantage of bulk buying power, reducing your production costs for example and/or increasing your profit margins.
Franchise networks require staff to support and oversee them, but far, far less than a similarly-sized company-owned operation would require to function. Franchisees take on all of the responsibilities for individual outlet staff, accounts etc.
Strength in depth
Many franchisors, particularly when they are starting out, encourage franchisees to contribute ideas for the future success of the brand. You’re all working towards the same goals, and the synergy in the relationship can be incredibly powerful; sometimes the views and experiences of others coming into your network creates new routes to success. The Big Mac was invented by a franchisee, and that’s been fairly beneficial to McDonald’s…
In addition, franchisees being able to lean on each other for advice and act as a sounding board leads to growth and more profit for all concerned. Being a business owner can be isolating at times and knowing there are others around to call on, as well as a head office support team, is reassuring.
Sounds good? One last thing to understand: franchising is not a tool to fix a bad business. It is not there to provide injections of income from other people to underpin a failing elsewhere, which will only create a larger bad business.
Franchising is a model used to replicate a successful and proven business, using the investment and skills of new individual business owners, who will be trained and supported to run the business under the agreement, conditions and format, as proven and agreed between both parties.
Ray Kroc (McDonald’s) and Fred de Luca (Subway) once started out with a single outlet and a dream. Get it right and you could have the next UK-wide success story – or even a global empire!
For more information on franchising your business see the British Franchise Association’s website: thebfa.org