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Franchising in the United Kingdom

Background

Franchising in the United Kingdom is quite convenient as compared to different countries. United Kingdom offers a big platform for businessmen and companies to come and grow their organizations in the United Kingdom. Brands like McDonald’s, Dominos, Costa among many other brands and corporations have many franchises in the United Kingdom and the number of brands entering the UK is growing.

UK Economy

Let’s take a look at the economy of United Kingdom. United Kingdom’s economy is the fifth largest economy in the world. Over the past few years the economy of United Kingdom is growing rapidly, Franchise Brands are playing a huge role in the economic growth. Let us not forget the tourism industry which plays a huge role in the economic growth of a country. The United Kingdom is the world’s 6th tourist destination with over 40 million tourists visiting the UK in 2018. All these industries are creating loads of jobs and boosting the economy of the United Kingdom. Another big market is the labor market. The labor market has been one of the strongest elements of the United Kingdom economy in recent years with employment rate at a record high. The employment rate for women and older workers has grown immensely. There is still further room for improvement but their economy is still really strong. GDP is valued at 2.828 trillion dollars as per the results of 2018.

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Franchise Market Overview
According to 2013 British Franchise Industry Report, the franchise industry contributed $21.9 billion to the economy. In 2012 there were 930 franchise systems in the United Kingdom with 37,300 franchise units. Franchising operates in nearly all sectors and is highly diversified. The United Kingdom market is mature and sophisticated. To succeed here. To succeed here, a company should offer a concept that is truly unique and different from all the concepts available in the market.

Now that we have discussed the economy and brief history of the economy of the United Kingdom, let’s discuss what kind of opportunities Franchise World Link in the United Kingdom provides for franchising and growth of the businesses. Businesses that are looking to franchise their business in the United Kingdom will find out that the market is robust and friendly to franchise systems in general. There are a number of laws that govern the operations of franchises within the EU, but these laws are broad but generally do not constrain the competitive positions of the businesses. The United Kingdom has no specific laws governing franchising. There are an estimated 48,600 franchises in total in the United Kingdom. This figure shows how big the franchise market is in the United Kingdom. This can turn out to be an advantage for new entrants in the franchise business as there are a lot of opportunities to grow. But we have to keep the fact in mind that entering and succeeding such a huge market is not a piece of cake. Yes, there a lot of opportunities but to take those opportunities at the right time and succeeding is not easy. However, the companies that demonstrate a commitment to the market and perform adequate research into their industry will do well in the United Kingdom. Making the appropriate approach will reap highly rewarding results.

There are two main categories in franchising, one is Retail franchises and the other is Service franchises. When considering the opportunities in the United Kingdom market we have to keep in mind these two categories. Retail or Service. Retail franchises are hallmarked by their need for significant physical trading premises while Service franchises have a limited (if any) need for a physical location. The most common examples of Retail franchises include fast/fast casual food, restaurants, bars/pubs, and hotels. Examples of Service franchises include education, management, employment/training, professional and IT services, and domiciliary care. As they entail physical property with fixtures and fittings, Retail franchises require substantially more investment and thus carry higher risk. Property rents are high, and London property prices can be prohibitively so. Successful routes to market for incoming franchise systems include pilot locations, joint ventures, regional chain takeover, and partnership/colocation with an existing United Kingdom franchise.

United Kingdom lenders will not fund a system that is unproven in the United Kingdom market. To secure funding (typically 50%), lenders will require solid business plans, based on the results of a UK pilot or pilots. It is important to note that the market in London is substantially different from other United Kingdom cities. A pilot’s performance in London may not accurately indicate trends for the entire country. If a Retail franchises intend to trade outside of London, the pilot location(s) selected should reflect this. Service franchises, which have a limited physical property requirement, have a substantially lower cost of initial investment than Retail franchises. As such, Service franchises offer a higher probability of success and more opportunity for franchise systems. When seeking a United Kingdom master licensee, systems with a specific, targetable candidate profile will have a better chance of success. Franchises that have advertised in the United Kingdom national press have also experienced higher rates of success, as they have reached a larger potential candidate audience. Due to the high cost of recruiting unit franchisees, high cost master franchise licenses are likely to fail. The conversion rate for unit inquiries to investment ranges from 1 in 50 to 1 in 200. To support and encourage master franchisees, an emerging trend in the market is to spread the initial franchise fee over several years or as each unit is recruited. High upfront costs will deter investors and will negatively impact a master franchisee’s ability to enter the market and grow the brand.

According to the results of 2018, there are 48,600 franchises working all over the United Kingdom. These franchises are contributing over £17.2 billion and 710,000 jobs to the economy. Below are some of the top franchises in the United Kingdom:

How will Brexit impact the United Kingdom franchise industry?

Brexit has created some uncertainties in the minds of the customer. But the franchisors are confident that they will stop their customers from having second thoughts about their franchises after Brexit.

Another major discussion around Brexit is how it will affect the supply chain of the franchises. They are still not sure what terms will be decided upon around the free movement of goods from Europe to the United Kingdom. It is expected that import duties will be imposed on UK products and if any of their product is sourced from Europe, they will have to pay more. This means if any of the franchises are doing this, they need to find alternatives.

So, to say if Brexit will have a positive impact on franchises or a negative impact is still hard. The evolving situation will answer all our questions regarding the impact of Brexit on Franchises.
Franchise World Link helps franchisors finding country masters franchisees internationally. We connect investors with franchisors, we operates internationally with more than 20 offices, covering a total of 45 countries, with a strong presence in Asia and Africa.

Anwar Uddin MBA
Country Manager UK
Franchise World Link
Unit7a, Radford Cres, Billericay
England, CM12 0DU
anwar.uddin@franchiseworldlink.com
Tel: +44 7887852732
Mobile: +44 7887852732
Skype: anwar.uddin@outlook.com
www.franchiseworldlink.com

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